Further Extension To Covid-related Insolvency Restrictions: Practical Implications For Debtors And Creditors

• Published date: 05 July 2021
• Subject Matter: Real Estate and Construction, Insolvency/Bankruptcy/Re-structuring, Coronavirus (COVID-19), Insolvency/Bankruptcy, Landlord & Tenant - Leases, Government Measures
• Law Firm: Stevens & Bolton
• Author: Mr David Steinberg, Helen Martin and Markus Klempa

Following a government announcement on 16 June, the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) (No. 2) Regulations 2021 (the Regulations) have been laid before Parliament, coming into force on 22 June.

The Regulations further extend the restrictions on statutory demands and winding up petitions which were introduced last year to give businesses a "breathing space" during the pandemic. These measures had been due to expire at the end of June - leading to fears of a wave of insolvencies when they were lifted. Any potential wave has now been postponed at least to the autumn - with the relevant period now expiring (absent further extension) on 30 September 2021.

The Regulations do not extend the temporary suspension of directors' liability for wrongful trading, and this was not referred to in the government's announcement on 16 June - although it may be that such an extension will follow, as it has on previous occasions.

It was also announced on 16 June that - following the UK government's call for evidence published in April this year, seeking stakeholders' views on what should replace the restrictions on forfeiture of commercial tenancies for non-payment of rent - those restrictions will be extended by a further nine months, to 25 March 2022. The same is true for commercial rent arrears recovery action (CRAR), albeit it remains the case that CRAR can be exercised as long as 554 days' rent is outstanding. In extending these restrictions again, the government will be expecting tenants to pay where they can, but where not, it will introduce legislation to ring fence rent arrears built up during the periods of closure due to the pandemic. Landlords will then most likely be forced to share the financial impact with tenants, with a binding arbitration process to take place where agreement cannot be reached.

What this means will depend on the drafting, but if the proposed legislation does what the government aims to achieve, it is to be hoped it will strike the right balance between protecting landlords and supporting businesses in most need. However, whether the property industry agrees is another matter. Landlords are already expressing dismay at another nine months of restriction (with a potential legal challenge now being considered by the British Property Federation) whilst tenants are generally heaving a sigh of relief. This puts the additional insolvency restrictions, which we consider more closely in this...