Many businesses will have welcomed further government measures to support SMEs struggling with finances due to COVID-19 but others will be frustrated as they continue to be prevented from enforcing debts or removing non-paying commercial clients from premises that could be let to new tenants.
The comments come after Steve Barclay, chief secretary of the treasury, announced longer than expected extensions to pandemic protections.
Stephen Rome, head of the Commercial Litigation and Contentious Insolvency team at Thursfields, explained the government had previously provided protection to businesses in financial difficulty caused by COVID-19.
This included preventing creditors from being able to present statutory demands as well as winding-up petitions.
This protection has now been extended until 30 September 2021, while landlords are also prevented from rent-related forfeiture of business tenancies until 25 March 2022, including the use of commercial rent arrears recovery action.
Stephen said: “The news will be welcomed by those who need further time to get their businesses on a firm footing.
“But it will frustrate many who have had to wait several months looking to enforce debts or take possession of properties so they can be let to new tenants.
“We have acted for both creditors and debtors in the last year and there is a difficult balance of interests the UK government is trying to look after.
“Creditors cannot be prevented from taking enforcement action indefinitely as they too will have financial commitments, including rising staff costs and refinancing of any loans during the pandemic.
“Some companies that would ordinarily have had to enter some form of liquidation process have managed to continue trading due to the protection afforded by the Corporate and Insolvency Governance Act 2020.
“That protection has been extended again but for many the writing is already on the wall.
“Once the protection on issuing winding-up petitions falls away in October the court service could be inundated with compulsory liquidations for any companies that have not already sought to enter some form of voluntary liquidation process.
“Owner-managed businesses with concerns should therefore seek advice from a solicitor or insolvency practitioner, especially as they may be unaware of further duties owed to creditors if the company is insolvent.”
Stephen said the insolvency protection saw a significant decrease in companies entering some form of liquidation process, down from 40.5 per 10,000 in the first quarter of 2020 to 25.3 per 10,000 in the same period of 2021.
But there may be positive news coming for tenants that would like to remain in control of premises and reach an arrangement with their landlords.
New legislation going through Parliament is likely to assist tenants as it will require them to work with landlords to agree how pandemic rent arrears can be repaid over a longer term via a legally binding arbitration process.
Stephen added: “This could be a welcome relief to tenants with a long-term High Street presence who want to avoid relocating to a new location that customers may be unwilling to travel to.
“The arbitration process could prove useful, especially if an experienced arbitrator can be involved to reach a binding decision that is fair to both parties.
“Our team of experts will be on hand to support our clients during this process, which will be more efficient in terms of time and costs compared with pursuing disputes in court.”
Businesses needing advice can contact Stephen Rome via 0345 20 73 72 8 or by emailing SRome@thursfields.co.uk.