Protecting Businesses during Covid-19

Category: Commercial, Dispute Resolution

Since March 2020, business has had to learn to adopt in response to the arrival of Covid-19.

The upheaval that we have experienced has affected all aspects of our lives. Businesses have also had a tough time. All trying to cope with severe disruptions while worrying about keeping safe. Closures and loss of income became a regular feature of business life. Whilst everyone did their part in fighting the Coronavirus crisis.

Legislation has been passed to go some way to protecting businesses from closure and or costly court action.

However, many of the main protections introduced by the Government have recently expired. It is therefore important to be aware of which protections your business may have benefitted from over the last 18 months. Additionally, what changes in the law may mean for you going forward.

The Initial measures (March 2020 –October 2021)

The government, in order to support businesses and prevent them from failing, announced a range of provisions in January 2020 under the likeness of its Corporate Insolvency and Governance Act 2020 (the Act). The act came into force last Spring. It set out temporary insolvency measures. Aimed at minimising the number of companies entering insolvency as a result of the disruption caused by Covid-19.

An important measure introduced by the Act, was a provision preventing creditors from serving statutory demands on companies between the above dates. Statutory Demands are often the first step in making a business insolvent. Creditors have largely been prevented from petitioning for a Company’s debt between these dates. The court, when faced with a petition, had no discretion if it determined that the non-payment of a Company’s debts accrued as a result of Covid-19  – the petition would automatically fail.

These temporary measures largely came to and from the start of October 2021. What does this mean for businesses who had relied on this provisions? Do you have even more to worry about?

The new measures (October 2021 – March 2022)

Although the initial measures have now come to an end, the good news is that modified rules have come into force since 1st October 2021. This will remain in place until at least 31st March 2022. These will work to limit winding up petitions and include the following provisions.

First of all, petitions issued can only be presented for debts over £10,000 during this period. Companies will not face winding up applications for anything less than that.

Secondly, the creditors will be required to first ask businesses for their repayment proposals; who will have 21 days to respond.

Finally, if the debt is for commercial rent such as for business premises, it will have to be unrelated to Covid-19. Commercial tenants still have an obligation to pay their rent where they can, but if they are unable to pay rent because of Covid related difficulties, creditors will not be successful with their petition application.

Will Companies be safe from Evictions?

Companies will therefore be safe from evictions; so long as the debt can be shown to have accrued as a result of the impact of Covid-19. It is for the creditors to prove that the debt was or would be accrued regardless of Covid. This adds a layer of protection and allows the company to come up with a repayment plan without having to vacate their rented premises.

The repayment plan will have to include the proposed figures and specify to which period of rent due it relates, so that it can be allocated appropriately.

The intention is to encourage the parties to negotiate and do everything possible to prevent one party petitioning for a winding up order.

Hopefully, with this additional breathing space, companies will be able to engage with the creditors in a meaningful way to work towards reducing their debts and facing bankruptcy.

Anything else concerning commercial business lets?

Further, for business tenants, the Government has announced plans to come up with a rent arbitration scheme.

The scheme is intended to apply in situations where commercial landlords and their tenants cannot find agreement on managing rent arrears. It is not intended to apply to help tenants avoid payment; it is very important to keep in mind that the new measures and legislation expect the tenants to pay their rent where they can. So, if the company has the means to do so, it simply must.

However, if no agreement can be reached on deferring or writing off rent which has fallen due, the new scheme will apply which will see the dispute referred to an arbitrator. The arbitrator’s decision will be binding on both parties and, importantly, will be final. If either party is unhappy with the outcome, they will not have the option of referring the matter to the courts. The intention is to cause the parties to reach an agreement without putting themselves in the hands of the arbitrator. However, the scheme is also designed to prevent protracted litigation and, in many cases, a lot of costs for already struggling businesses. The tenants will have to pay their debt based on the terms set out in the arbitrator’s decision.

Further Announcements

The government will make further announcements once they finalise the arbitration scheme. In the meantime, these are the things to take away from the latest changes:

  • Until the end of March 2022, creditors will only be able to bring a winding up  petition for debt above £10,000;
  • Pay rent if you can. If not negotiate a repayment plan. Which creditors will need to seriously consider;
  • Remember that the protections only apply to the Covid-19 related debt, accrued as a result of closures/restrictions;
  • Any other debt pre-dating March 2020 and post-dating 1st October 2021 can still lead to an eviction;
  • Watch this space for the arbitration scheme, which will provide a binding, final decision on commercial debt matters.

We can help

Ceren Fox works as a solicitor in Nash & Co Solicitors’ Commercial Dispute Resolution Team. Do you have any concerns regarding your own business? Or would like some advice regarding a commercial dispute? We would like to hear from you! Let’s arrange a no obligation initial call to see how we can assist.

You can reach Ceren on 01752 827120 or she’s available by email at [email protected].

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