On 16 June 2021, the Government made two key announcements regarding the ongoing temporary support measures for businesses to deal with the COVID pandemic and associated restrictions on trading. These changes extended the period for which businesses will be protected from landlords taking action to recover rent arrears and from creditors issuing winding up petitions.
Restrictions on landlords seeking eviction or to enforce against goods to recover arrears have been extended to 25 March 2022, while the restriction on creditors seeking to issue a winding up petition relying on a statutory demand and the requirement to demonstrate that insolvency did not result from the pandemic will continue until 30 September 2021.
We have seen a number of such extensions in the past, there are differences in approach this time which may start to indicate the endgame that the Government has in sight for businesses to resolve the balance sheet impact of the pandemic.
This is most clear in the context of the extension of landlord restrictions. Here the Government acknowledges that the financial impact of closures due to the pandemic should be shared between landlords and tenants. On this basis, the current extension is framed as the period required to bring forward legislation to impose an arbitration mechanism to resolve such disputes, the idea being that landlords and tenants seek to reach a consensual agreement on the allocation of losses prior to the end of this (hopefully final) extension.
In our view this is a sensible approach to resolving the impact of the pandemic as between the various stakeholders in a business. It seems right that the allocation of losses is dealt with on an equitable case by case basis and the Government acknowledges this by emphasising that businesses which can meet their rent bill, should do so.
In this context, it seems odd that the restriction on winding up petitions is only being extended to 30 September 2021. There is little point in restricting certain landlord rights to enforce to encourage consensual resolution by March 2022, but then allowing landlords, as well as all other creditors, to apply pressure through the use of a winding up petition at an earlier date.
The ability to seek a winding up petition is an important remedy and a key part of operating in business as usual. If we take an optimistic view that vaccinations and other control measures allow a return to some form of normality by the start of autumn, then having no ability to seek a winding up petition would seem to skew the playing field and prejudice creditors. Rather, it would seem more sensible to allow winding up petitions on a go forward basis for new debts, but, as with rent arrears, for there to be some ringfencing of pandemic period debts to be resolved on a timeline similar to that imposed on landlords.
If some new restriction is not introduced on winding up petitions, there is still a risk of business failures in the autumn. Businesses will be wrestling with the realities of their new business as usual, while still facing the overhang of pandemic period debts. As such, we would expect to see something introduced by the Government to address this.
In the meantime, while this is a further extension of protective measures, this does not feel like kicking the can down the road as previously. These announcements suggest bookends of September for achieving business as usual and March for resolving pandemic trigger debt issues. If correct, this could be a very busy six months for businesses and their advisors and businesses would be well advised to think proactively what issues they have and how these can be addressed.