Businesses across the UK are facing significant challenges in 2022. The continuing fallout from the Coronavirus pandemic, increasing inflation, rising interest rates, and now the war in Ukraine, the latter driving up fuel and energy prices even further, are providing the ‘interesting time’ most business owners dread. Leading corporate advisory and investment firm, Cork Gully predicts business insolvencies to reach around 20,000 in 2022, up from 14,913 in 2021.
Two key events due to come into effect in March are likely to trigger insolvencies, namely:
Let’s examine these two points separately.
Since the start of the Coronavirus pandemic in 2020 the UK government has been focused on helping businesses survive the national lockdowns imposed and job retention. Given that many sectors were unable to operate during lockdowns, the government passed laws to prevent commercial landlords from being able to evict tenants who fell behind on rent payments. This moratorium is due to expire on 25th March 2022.
At present, the Commercial Rent (Coronavirus) Bill is passing through Parliament and should receive its Royal Assent on the same day the aforementioned moratorium ends. In anticipation of increased landlord and tenant disputes, the Bill creates a statutory arbitration process to resolve disputes relating to rent arrears accrued during the Coronavirus pandemic. Furthermore, the government has reissued the ‘Code of practice for commercial property relationships following the COVID-19 pandemic’, which sets out guidance as to how parties are expected to approach pandemic-related arrears and how the arbitration scheme will operate. The Code sets out the principles that should be followed by landlords and tenants in the case of a dispute, including the desirability to preserve businesses and jobs, the solvency of the landlord, and the need to act reasonably, transparently, and in good faith.
Despite the arbitration process and the Code of Practice, there will be some businesses that cannot realistically remain solvent once the moratorium is lifted. These include landlords as well as tenants. If you are concerned that your business will become insolvent within the next few months it is vital to contact a solicitor who specialises in defending bankruptcy and winding-up petitions to ensure your best interests are protected.
Between 1st March 2020 and 30 September 2021 a winding-up petition could not be introduced by a creditor if it was based on a company’s inability to pay its debts (including rent) unless the creditor had reasonable grounds for believing COVID-19 had not had a financial impact on the company, or that the company’s debt issues would have arisen in any event.
As it was clear that many companies were still struggling to pay their debts at the time the above protection was due to expire, temporary measures were put in place which included:
These temporary measures will expire on 31st March 2022.
Although the Courts discourage creditors from applying winding up petitions as a debt collection tool, creditors do use them to focus debtors’ attention on the amount owed to recover payment without further delay. It is predicted that creditors who have been waiting for two or more years to collect payment will be issuing winding up petitions with notable enthusiasm.
The combined effects of the Coronavirus-related protections ending, inflation, and rising interest rates will mean even the most profitable businesses will need to manage their cash flow carefully, the old cliché cash is king is very relevant. For companies teetering on the edge of insolvency, the impact of the aforementioned challenges may prove unsustainable.
If you are issued with a statutory demand or winding up petition you can choose to defend it. A creditor runs a risk in presenting such petitions as if you, as the debtor, successfully have the petition set aside, the creditor can be subjected to an adverse costs order which should be used as a mechanism to deter petitions being presented if negotiations ensue.
To successfully defend a statutory demand and/or winding up petition it is imperative to instruct a solicitor who is experienced in this niche area of law as the risks can lead to catastrophic consequences, including substantial losses.
