Close Menu
  • News
  • Home
  • In Profile
  • Finance
  • Legal
  • Technology
  • Events
  • Features
  • Well Being
  • Marketing
  • HR & Recruitment
  • About
  • Advertise
  • Events Calendar
  • Business Wall
  • Subscribe
  • Contact
  • 0843 289 4634
X (Twitter) LinkedIn YouTube
Trending
  • Developing an AI use policy
  • 3 learnings for SMEs from Climb24, the UK’s festival of innovation
  • Protect your start-up with a simplified shareholders’ agreement
  • Employment Expert Warns of TikTok Career Trends’ Negative Impact: Are Workplaces Falling Short?
  • Simply Asset Finance secures £120m loan facility from Bank of America
  • Campers acknowledges the impact of the North West adoption programme
  • Empowering ESMBs with Cutting-Edge Solutions: An Interview with Giovanni Crispino, Head of EMEA ESMB at Salesforce
  • Louise Hunt Skelley Ply And Samanta Bullock Launch A New Era Of Disability Advocacy
X (Twitter) LinkedIn YouTube
SME Today
  • About
  • Advertise
  • Events Calendar
  • Business Wall
  • Subscribe
  • Contact
  • 0843 289 4634
  • News
  • Home
  • In Profile
  • Finance
  • Legal
  • Technology
  • Events
  • Features
  • Wellbeing
  • Marketing
  • HR & Recruitment
SME Today
  • About
  • Advertise
  • Events Calendar
  • Business Wall
  • Subscribe
  • Contact
  • 0843 289 4634
You are at:Home»Legal»Business Insolvency during the COVID-19 pandemic

Business Insolvency during the COVID-19 pandemic

0
Posted By sme-admin on November 9, 2021 Legal

SMEs have faced many challenges during the COVID-19 pandemic from supply chain delays and staff shortages to a lack of cashflow and being unable to pay creditors.  Quite early on, the Government recognised businesses would need financial breathing space (during the economic uncertainty created by the pandemic) particularly from potentially aggressive creditor action.   It therefore brought in temporary changes to the insolvency regime to help UK businesses maximise their chances of survival.

Jenifer_MartindaleOne of the main changes within the insolvency regime was the moratorium on being able to rely on non-payment of a statutory demand as proof of a company’s insolvency, coupled with the moratorium on the presentation of winding up petitions.  While these strict moratoriums came to an end on 30 September 2021, from 1 October 2021, limited restrictions still apply.

What is a statutory demand?

A statutory demand is a formal document which demands payment of a debt within 21-days – if payment is not made, the creditor can present a winding-up petition and is able to rely on the non-payment as evidence of a company’s insolvency.

If a company takes no action in response to a statutory demand, and a winding up petition is presented then the consequences are serious: the company’s bank account will likely be frozen, the company’s commercial reputation and credit rating will be harmed and directors may be at risk of personal liability for their actions.

Moratorium on statutory demands

Between 1 March 2020 and 30 September 2021, there was little point in a creditor serving a statutory demand because it could only be relied upon if a creditor had reasonable grounds for believing COVID-19 has not had a financial effect on the company, or the debt issues would have arisen anyway. Clearly without a detailed knowledge of a debtor company’s financial position, it will be nigh on impossible to show that COVID-19 has not had a financial impact, particularly if the debtor company claims it has.

Situation from 1 October 2021

Less restrictive measures came into force on 1 October 2021 and are (presently) to last until 31 March 2022.

The Government is keen to avoid a deluge of company insolvencies and its aim with the new measures is to introduce a “tapering” that will help businesses to get back to normal without facing a “cliff-edge”.

An important change is the lifting of the moratorium on statutory demands.  Once again, non-payment of a statutory demand (served from 1 October) can be relied upon to show a company is unable to pay its debts.  However, there continues to be a moratorium on the presentation of a winding up petition for debts under £10,000 and for arrears of business rent (unpaid because of a financial effect of COVID-19).

A creditor will also not be able to present a winding-up petition unless it has (1) served a notice (following a strict format) which requests the debtor company’s proposals for payment of the debt, and (2) can demonstrate that it has sought to negotiate payment and can explain why any such proposal from the debtor company is not satisfactory.

Have the measures helped struggling companies?

There is no doubt that the measures have helped companies to survive during the pandemic.

Insolvency Service figures show that there were approximately 55% fewer compulsory liquidations in 2020 compared to 2019, and the figures for the first half of 2021 are even lower.

The measures appear to have given businesses breathing space to continue to trade although it remains to be seen whether the measures have simply delayed the inevitable for some. Indeed, figures from the Insolvency Service show that voluntary liquidations  are on the increase and the number in Q2 of 2021 is the highest since the start of the pandemic.

What should businesses do if served with a statutory demand?

If a company is served with a statutory demand and notice (from 1 October), the following steps are suggested:

  1. Check the amount of the debt – if it is under £10,000, then the creditor will not be able to present a valid winding up petition.
  2. Check the circumstances of the debt – if the debt is for commercial rent arrears arising because of a financial effect of COVID-19, then the creditor will not be able to present a valid winding up petition.
  3. Investigate whether the debt is owed. If the debt is disputed on genuine and substantial grounds, it is not appropriate for the creditor to use an insolvency process.  Contact the creditor to make the creditor aware the debt is disputed and ask them to withdraw the statutory demand.  If they refuse, seek legal advice on the next steps to be taken.
  4. If it is accepted that the debt is owed, analyse whether the company is able to pay the debt or not. If it can be paid without causing other financial difficulties then the debt should be paid within the 21 day period.  If financial difficulties would arise, contact the creditor using the notice to make a payment proposal.  The company may also want to seek legal advice and advice from an insolvency practitioner.

Most importantly, never ignore a statutory demand and if you are at all unsure, obtain legal advice.

 

Jenifer Martindale, Partner at Wilsons Solicitors

Share. Facebook Twitter Pinterest LinkedIn Tumblr Email

Related Posts

Protect your start-up with a simplified shareholders’ agreement

Do You Need To Insure Your Side Hustle?

Get the Most Out of Your Ideas with IP. BWR IP Seminar

Comments are closed.

Follow SME Today on Linkedin and share all the topics you find interesting

The Newsletter

Join our mailing list to receive the latest news and updates from SMEToday
Read our Latest Newsletter:

Sign Up
Events Calendar
    • Marketing
    June 27, 2024

    Empowering ESMBs with Cutting-Edge Solutions: An Interview with Giovanni Crispino, Head of EMEA ESMB at Salesforce

    June 24, 2024

    Why Human Storytelling is Vital for Every Startup Marketing Strategy

    • Finance
    June 28, 2024

    Simply Asset Finance secures £120m loan facility from Bank of America

    June 19, 2024

    Do You Need To Insure Your Side Hustle?

    • Health & Safety
    April 15, 2024

    Careless Driving Habits Common Practice Among Motorists

    March 20, 2024

    Cleaning stairs, climbing ladders and changing light bulbs: which of these activities are allowed under health and safety rules?

    The Great British Expos 2024
    The Great British Expo's
    • Events
    June 18, 2024

    Get the Most Out of Your Ideas with IP. BWR IP Seminar

    June 3, 2024

    Nicola Peake Launches Peakefest to Inspire and Rejuvenate Business Founders

    • Community
    June 24, 2024

    Festivals Unite to Launch National Green Events Code

    May 10, 2024

    Breast Cancer Consultant Dr Hugo De La Pena Has Raised More Than £10,000 For Cancer Research

    • Food & Drink
    May 24, 2024

    Devon distillery raises a glass to future growth with £100k funding deal

    May 13, 2024

    Sussex mum toasts success as small business grows

    • Books
    March 5, 2024

    No Silver Bullet: Bursting the bubble of the organisational quick fix

    January 12, 2024

    Top lessons all entrepreneurs can learn from the boy who survived the wild

    About

    SME Today is published by the same team who deliver The Great British Expos’. We have been organising various corporate events for the last 10 years, with a strong track record of producing well managed and attended business events across the UK.

    Join Our Mailing List

    Receive the latest news and updates from SMEToday.
    Read our Latest Newsletter:


    Sign Up
    X (Twitter) YouTube LinkedIn
    Most Recent Posts
    July 2, 2024

    Developing an AI use policy

    July 2, 2024

    3 learnings for SMEs from Climb24, the UK’s festival of innovation

    July 1, 2024

    Protect your start-up with a simplified shareholders’ agreement

    June 28, 2024

    Employment Expert Warns of TikTok Career Trends’ Negative Impact: Are Workplaces Falling Short?

    June 28, 2024

    Simply Asset Finance secures £120m loan facility from Bank of America

    Categories
    • Books
    • Community
    • Education and Training
    • Environment
    • Events
    • Features
    • Finance
    • Food and Drink
    • Health & Safety
    • HR & Recruitment
    • In Profile
    • Legal
    • Marketing
    • News
    • Property & Development
    • Sponsored Content
    • Technology
    • Transport & Tourism
    • Well Being
    Copyright © 2024 SME Today.
    • ABOUT SME TODAY: THE GO TO RESOURCE FOR UK BUSINESSES
    • Privacy
    • Contact

    Type above and press Enter to search. Press Esc to cancel.