Further extensions announced for the restrictions on winding petitions and commercial tenant evictions.
On 16 June 2021, the UK Government announced a further update on the temporary insolvency measures that were first introduced in March 2020. It has once again extended the temporary restrictions on the use of statutory demands and the presentation of a winding up petition for a further three months until 3 September 2021.
More drastically, the Government has also extended the moratorium on commercial tenant evictions until 25 March 2022 to allow time for negotiations for the repayment of rent arrears between landlords and tenants. The Government further announced its intention to introduce a mandatory and binding arbitration process for ring-fenced rent arrears if the parties are unable to reach an agreement as to the terms of repayment. The draft legislation on this process is awaited.
Interestingly, the Government did not make any announcements as to the temporary suspension of wrongful trading, which is set to expire on 30 June 2021.
These further extensions may provide welcome relief for businesses and, in particular, commercial tenants in the short term, but will undoubtedly pile more pressure onto already struggling businesses. Directors should be mindful of their duties and responsibilities during this challenging period and seek advice early.
If your company is experiencing financial difficulties, you may consider taking the following practical steps to protect yourself against potential personal liability if the company subsequently goes into a formal insolvency process:
- Familiarise yourself with your duties as a director of a company in financial difficulty. This may seem obvious; however, it is imperative that directors understand when the duties owed to the company and its shareholder across to the company’s creditors.
- Act early to seek independent advice from an insolvency lawyer or licensed insolvency practitioner and engage them to provide support on an ongoing basis if required.
- The board should meet frequently to discuss the company’s ability to continue trading and pay close attention to its financial position. Detailed minutes should be kept of all directors’ meetings, to include details of any decisions made, the reasons behind those decisions and the position of any dissenting directors.
- Review any financing facilities to ensure that the company is continuing to meet its financial covenants and engage with lenders early if you are concerned about any potential covenant breach.
- Do not ignore any demands for payment from creditors: seek legal advice as required. If the company is unable to pay straight away, ignoring those demands may result in the creditor taking further action against the company, such as issuing a winding up petition (if permitted). This may cause serious harm to the ongoing trading of the business.
- In some cases where a board of directors is unable to agree on key issues, a director may consider resigning from the board as a last resort. Any dissenting directors should ensure that their concerns are detailed in the relevant board minutes and are set out in a resignation letter to the board.
- If it becomes clear at any point that there is no real prospect of avoiding insolvency, seek urgent advice from professional advisors with a view to commencing a formal insolvency process.
We would urge any directors who are concerned about their company’s financial position to seek advice early, whether on behalf of the board of directors or in their personal capacity. If you would like to discuss your situation in confidence, please do get in touch with us.
This note is not intended to substitute legal advice from your instructed lawyer. You should always consult with your lawyer directly regarding any specific queries you may have.