Insolvency Protection Measures to be Phased Out from October
Measures introduced to protect struggling businesses from being forced into insolvency or liquidation during the pandemic are to be phased out from October 1st, the government has confirmed.
Statements given by the government and its official Insolvency Service make clear that the protections given to financially distressed businesses in recent months will soon expire.
The measures effectively shielded companies in distress from their creditors in a variety of ways, with the aim being to provide some breathing space to operators that were in danger of becoming insolvent during the pandemic.
But with the economy having been largely reopened in recent months, policymakers are aiming to renormalise circumstances and arrangements around business debts and insolvency in general.
Specifically, the government is planning to lift restrictions on creditor actions, which is likely to result in a notable increase in the number of companies becoming insolvent and entering liquidation in the coming months.
The Insolvency Service has explained that the protections introduced in 2020 were designed fundamentally to ensure that companies that were viable prior to the pandemic were not forced out of business by the virus and the lockdowns it necessitated.
However, “as the economy returns to normal trading conditions”, the government has said, businesses could again find themselves on the receiving end of creditor actions relating to any debts they have outstanding.
Despite expectations that more companies will be forced out of business once relevant protections are removed, there are also plans to introduce policies that give firms more time and a better chance to trade their way back to financial health before creditors can take action that leads to them being wound up.
Those new measures will be designed in part to help high street retailers and hospitality operators recover financially given how badly they were impacted by Covid lockdowns.
“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,” said government minister Lord Callanan in a statement.
“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 protections will help them to do that,” he added.