The Government’s imminent removal of temporary pandemic insolvency measures should be a catalyst for regional business owners to address any financial problems they believe they could be facing.
That’s the view of Chris Ferguson, North East deputy chair of insolvency and restructuring trade body R3, after Business Minister Lord Callahan announced that the rules brought in to protect companies in pandemic-related financial distress from creditor action would be phased out from 1 October.
For the six months following this date, a temporary £10,000 debt threshold for issuing a winding up petition will be introduced, instead of the usual £750 figure, to ensure that businesses remain protected from creditor action over relatively small amounts of money.
Creditors will also be required to seek proposals for payment from a debtor business during the same period, and must give them 21 days to respond before proceeding with any winding up action.
From the start of October, businesses should be paying contractual rents where they are able to do so, although the existing restrictions preventing commercial landlords from presenting winding up petitions against limited companies relating to any rent arrears they built up during the pandemic will remain in place for the next six months.
Chris Ferguson, who is head of recovery and insolvency at RMT Accountants & Business Advisors in Gosforth, says: “The Government has chosen to taper the withdrawal of these protections rather than removing its support in one go, which is an approach that reflects the gradual opening up of the economy and the need to balance the interests of businesses with those of their creditors.
“These protections have played a key role in enabling countless North East firms to stay in business while not being able to trade normally, or indeed at all, and we would strongly urge any North East business owners who are concerned about the impact of their removal on their future prospects to seek advice as soon as possible.
“Businesses who seek advice early often have more options open to them, more time to make a decision about their next steps, and more favourable outcome than if they’d waited and let the problem spiral.
“The end of the ban on the use of winding up petitions and the temporary introduction of the new £10,000 debt limit will allow those who are owed significant sums of money to take action against those who owe it, while at the same time preventing viable businesses facing the threat of winding up petitions over relatively small sums.
“While this increase will only be temporary, it’s a significant lift from the original £750 figure, and given the challenges that North East firms have faced, and indeed are still facing, it’s a very welcome adjustment.
“The requirement for creditors to seek repayment proposals from debtor businesses before being able to take winding up action formalises an approach that many creditors have used since the onset of the pandemic, as most have recognised that engagement rather than immediate enforcement can lead to better outcomes all round.”