In the United Kingdom, there is a temporary cap on the duration of a winding-up petition until June 30th
The immediate limits on legislative demands and winding-up petitions will be extended from 31 March to 30 June 2021, according to a statutory instrument filed yesterday. From 30 April to 30 June 2021, the temporary suspension of wrongful trading liability will be extended. This comes after the 10 March announcement that the bans on business evictions and tenants using Industrial Rent Arrears Recovery will be extended.
The extension of these temporary insolvency provisions was widely anticipated, given the recent extensions of other government Covid-19 support initiatives. While the government billed the most recent extension of the winding up restrictions to 31 March 2021 as the final extension, it was revealed in early December, before the discovery of the current Covid-19 version and the implementation of the third lockdown.
While the winding-up restrictions were designed to protect corporate tenants during a temporary lock-down, they now extend to all businesses in all industries, regardless of their financial viability. And the very important suppression of normal insolvency levels increases with each extension. According to the Insolvency Service's most recent quarterly figures, the overall amount of business insolvencies in 2020 will be at its lowest level since 1989. Insolvency levels are likely to stay low before insolvency and other government support programs are phased out, leaving the economy burdened with an increasing number of 'zombie' businesses.
As we stated in our September Thought of the Month, the temporary winding-up restrictions are having a far-reaching impact on the real estate investment chain. According to the British Property Federation, gross commercial property rent arrears arising from the Covid-19 crisis and the limitation of landlord remedies could exceed £7 billion by the end of June.
When these steps expire (as they must), the government would have to strike a delicate balance. The government has announced that, as part of the extension of the ban on business evictions, it will open a call for evidence that will include potential measures that the government might take after 30 June to support tenant-landlord negotiations. "From a staggered elimination of current protections to legislative alternatives aimed at those companies most affected by Covid-19," according to the plan.
The specifics of this are eagerly awaited. A more complex approach that offers tapered assistance where it is justified while still beginning to address the issues that insolvency limits and the ban on business evictions have created must be the path forward.