The government has announced today that the temporary restrictions on statutory demands and winding up petitions will be extended from 31 December 2020 to 31 March 2021, together with the bans on business evictions and landlords using Commercial Rent Arrears Recovery. This is the second time these insolvency restrictions have been extended. They were first introduced with effect from 1 March 2020 for the statutory demand restrictions and 27 April 2020 for the winding up petition restrictions.
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"Given the continuing coronavirus restrictions on the general public, the extension of these temporary insolvency restrictions shouldn't come as a massive surprise. The suggestion is that this will be the final extension, and so tenants who have built up substantial rent arrears since March 2020 should be using this time to address underlying issues to the extent they haven't already done so, before the restrictions expire. We've already seen a significant number of consumer retail businesses propose COVID CVAs to manage their rented property portfolios, and this trend shows no signs of abating."
Ru-Woei Foong, RSSG Partner
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While these insolvency restrictions appear to be aimed at supporting corporate tenants, in fact they apply to all companies across all sectors, regardless of their financial viability.
Together with the other government Covid support measures, the blunt nature of these insolvency measures is causing a very significant suppression of normal insolvency levels. Overall numbers of company insolvencies in England and Wales for April to September 2020 are down by around one third on a year on year basis1 - and this is in the middle of a recession of unprecedented magnitude when ordinarily insolvencies would be expected to rise. Until the measures are phased out, we can expect insolvency numbers to remain low, leaving the economy burdened with a growing number of corporates which may no longer be commercially viable.
While no-one wants to see a tsunami of insolvencies, the reality is that insolvency proceedings are a necessary part of a well-functioning economy. As we trailed in our September Thought of the Month, the impact of these insolvency measures is more far reaching across the investment chain than may be immediately apparent. Our hope is that in March, a more nuanced approach can be taken to provide tapered support where it is justified, but in a way that allows the insolvency regime to function properly to start to clean up the so-called 'zombie companies' and alleviate some of the growing economic pressure on other commercial stakeholders, including landlords and property owning businesses.
For further information on the extension to the ban on commercial evictions, see our briefing on Ban on commercial evictions extended to March 2021. For a link through to The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) (No. 2) Regulations 2020 please click here.
- According to the Insolvency Service, the overall number of company insolvencies was down by 33% YOY for Q2 2020 and 39% YOY for Q3 2020.
