A statutory instrument was laid yesterday which will extend the temporary restrictions on statutory demands and winding-up petitions from 31 March to 30 June 2021. The temporary suspension of wrongful trading liability will also be extended from 30 April to 30 June 2021. This follows the extension of the bans on business evictions and landlords using Commercial Rent Arrears Recovery announced on 10 March.
Given the recent extensions of other government Covid-19 support measures, the extension of these temporary insolvency provisions was widely anticipated. Although the most recent extension of the winding up restrictions to 31 March 2021 was billed by the government as the final extension, this was announced in early December before the discovery of the new Covid-19 variant and the third lockdown coming into effect.
While the winding-up restrictions were originally aimed at tiding corporate tenants over a temporary period of lock-down, they apply to all companies across all sectors, regardless of their financial viability. And with each extension the very significant suppression of normal insolvency levels mounts up. The latest quarterly statistics from the Insolvency Service show that the total number of company insolvencies in 2020 dropped to the lowest annual level since 1989. Until the insolvency and other government support measures are phased out, insolvency levels are likely to remain low, leaving the economy burdened with a growing number of 'zombie' corporates.
The temporary winding-up restrictions are also having a far-reaching effect along the real estate investment chain, as we trailed in our September Thought of the Month. The British Property Federation has estimated that the total accrued arrears of commercial property rent resulting from the Covid-19 crisis and the restriction of landlord remedies could be up to £7 billion by the end of June.
When these measures finally come to an end (as they must), the government will face a difficult balancing act. As part of the extension of the ban on business evictions, the government has announced that they will be launching a call for evidence which will include potential steps that the government could take after 30 June to support negotiations between tenants and landlords. These will range "from a phased withdrawal of current protections to legislative options targeted at those businesses most impacted by Covid-19". The detail of this is awaited with interest. A more nuanced approach which provides tapered support where it is justified, but starts to deal with the problems that the insolvency restrictions and ban on business evictions have caused, must be the right way forward.
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"The extension means that these winding-up restrictions will be in place for well over a year. And given the extension of furlough to September and the continuing uncertainty as to the route out of lockdown, it remains possible that we'll see another extension. While this will be welcomed by corporate tenants, this is at the continued expense of landlords and others along the investment chain who will be looking for the government to adopt a more balanced approach from June."
Inga West, Counsel
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