There were various techniques employed by the government to stave off the effects of the pandemic on business. Some were beneficial in the long run, others, such as the bounce back loans, are having serious repercussions for businesses that have not ‘bounced back’ as much as they hoped. Nearly all the measures aimed at temporarily offering a stay of action against insolvency have now been lifted but what does that mean for businesses?
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All things come to an end – The end of temporary insolvency measures.Posted: Apr 6, 2022

When the insolvency legislation was temporarily changed during the pandemic, I suspect there was a widespread sigh of relief from many business owners. At the time we had no idea of the extent or impact of the pandemic or what it would mean to the economy. Leisure, hospitality, retail, travel, and other sectors were clearly at risk. The measures put in place effectively prevented debts created by the impact of covid pushing companies to insolvency. Almost all of those measures have now been removed and it could spell trouble for any business that has outstanding debts.

HMRC and others will be collecting again

Probably the most important change in relation to the pandemic was the way HMRC handled outstanding debts. The temporary measures effectively prevented the issuing of winding up orders. These are part of the collection toolkit for HMRC and with the lifting of protection, they are going to come back. If you owe money for tax, national insurance, or VAT, then you need to act. If you can pay it, then now is the time to do so. If you cannot pay some or all the money you owe, then you need to take advice. There are potential options such as payment arrangements, but it is vital you make the right choices.

Similarly, either voluntarily or in response to the legislation, other debt collection companies have been taking a less aggressive approach and that is unlikely to continue. It is rare that HRMC and other debts do not go hand in hand for a business with financial issues. As a result, creditor pressure is now mounting for many companies from multiple sources.

In short, the bottom line is that everyone who is owed money is now free to pursue the collection of it in any legal manner, including issuing a winding up order.

The softly, softly, approach to debts may have been helpful at the time but we now are seeing a lot of businesses that, while they may not have totally forgotten their tax debts, have certainly placed them out of sight out of mind. This means that many businesses are suddenly having to face the reality of outstanding amounts owed to the government. Since HMRC are traditionally the largest petitioner for winding up orders I am sure we can all see where this is likely to head.

 

Commercial rent arrears

The government ringfenced debt for commercial rent as part of the measures to protect businesses during the pandemic. This has now been removed and, although a new arbitration requirement has been introduced, it is another area where we see problems arising post pandemic. Commercial rent arrears in theory allow a landlord to legally seize goods and remove the tenant from the premises. Under the new rules, this will be a slightly more complex process for many landlords as the government is encouraging arbitration and mediation before any serious action is taken. If needs be this can be enforced. All this only applies to certain circumstances though, so if you have rent arrears that you cannot pay our advice is to play safe. Treat them as a serious debt and work to resolve the problem.

HMRC debts and rent arrears are a common turning point at which a business needs to consider itself insolvent. As the Covid-19 support ends and the law either reverts to its pre-pandemic status or the new laws come into play one thing is certain, outstanding debts are going to be very high on the agenda for HMRC and landlords. If you are worried call us and make sure you are taking the right advice. 

There is plenty of information on winding up orders and debt collection on our website along with a calendar link to book a free chat to see what can be done if you think you may be insolvent.

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