Temporary insolvency restrictions to end in October

The government has announced that temporary insolvency restrictions protections which were brought in to support businesses during the pandemic will be phased out from 1 October 2021.

Through these measures, companies in financial distress as a result of the pandemic have been protected from creditor action since June last year.

This was to ensure that viable businesses affected by the restrictions on trading during the lockdown periods were not forced into insolvency unnecessarily.

As the economy returns to normal trading conditions, the government has issued these restrictions on creditor actions to be lifted.

However, new measures will be brought in to help smaller companies and give them more time to trade their way back to financial health before creditors can take action to wind them up.

The new legislation will protect businesses from creditors insisting on repayment of “relatively small” debts by temporarily raising the current debt threshold for a winding up petition to £10,000 or more.

It also will require creditors to seek proposals for payment from a debtor business, giving them 21 days for a response before they can proceed with winding up action. These measures will be in force until 31 March 2022.

Business minister Lord Callanan, said: “The success of our vaccine rollout means we are seeing life and the economy returning to normal with a strong rebound, and the time is right to lift the insolvency restrictions that were needed during the pandemic.

“At the same time, we know many smaller businesses are rebuilding their balance sheets and reserves, and some will need more time to get back on their feet. These new measure protections will help them to do that.”