"Final extension" of temporary prohibition on filing statutory demands and winding up petitions

Winding up petitions cannot be presented against a company based on a statutory demand served between 1 March 2020 and 31 March 2021. This is a blanket prohibition applying whether or not the failure to pay the demand is linked to COVID-19. Creditors are also prohibited from presenting winding up petitions based on a company’s inability to pay its debts until 31 March 2021 unless the creditor has reasonable grounds for believing that either COVID-19 has not had a financial effect on the company or that the circumstances forming the basis of the winding up petition would have occurred even if COVID-19 had not had a financial effect on the company.

The explanatory memorandum accompanying the regulations which bring these changes into effect acknowledges that the temporary restrictions on statutory demands and winding up petitions are "a significant intervention into the normal working of insolvency law" and accordingly, the Government will keep these temporary measures under constant review.

This follows the recent reintroduction of the suspension of personal liability for wrongful trading. In determining the contribution to a company’s assets that a director who has wrongfully traded should make, the court is to assume that the person is not responsible for any worsening of the financial position of the company or its creditors that occurs during the period from 26 November 2020 to 30 April 2021 (in addition to the existing suspension which applies between 1 March 2020 and 30 September 2020). Click here for more on this.

In addition, the protection for commercial tenants against landlords forfeiting on commercial leases as a result of a tenant’s failure to pay rent will be extended to 31 March 2021. Similarly, the protection against landlords taking Commercial Rent Arrears Recovery action, will be extended to 31 March 2021 meaning that at least 366 days' rent must be due for CRAR action after the December quarter date until the end of March 2021.

Whilst these extensions will be welcome news for businesses, particularly retailers and those in the hospitality sector who are in the midst of the critical Christmas trading period, it will be another kick in the teeth for landlords and statements from the Government that "if businesses can pay any or all of their rent, they should do so" will provide very little comfort as many have seen tenants simply refusing to pay even if they could afford to.

That's not all… The Government is going to issue further guidance early next year to support tenants and landlords in negotiations, to sit alongside the voluntary Code of Practice for commercial property relationships during the COVID-19 pandemic, published in June 2020. Looking further ahead, a review of "the outdated commercial landlord and tenant legislation, to address concerns that the current framework does not reflect the current economic conditions" has also been announced which will consider "how to enable better collaboration between commercial landlords and tenants and to improve the leasing process to ensure our high streets and town centres thrive as we recover from the pandemic and beyond". A bold ambition so watch this space.

The end of March is looking like a key date with furlough ending as well. The BBLS, CBILS and CLBILS are also due to expire at the end of January. There has been growing concern around the levels of deferred liabilities accruing in businesses and the impact of the furlough scheme running off so careful planning and engagement with lenders, landlords, suppliers and other stakeholders is going to be needed in good time to avoid a potential cliff-edge at the end of Q1.