At the time of writing this, a lot of the special COVID business protections and laws that were introduced by the government are beginning to expire as the UK prepares to ‘go back to normal’, at least in terms of law. The measures I am referring to are, of course, the ones around debt that had accrued or is accruing during the pandemic and its plethora of lockdowns. The measures were intended to alleviate business pressures and help ensure that businesses will survive until a time where customers can resume their usual spending activity and the economy achieves some level of stability, as well as to ensure there is not a complete financial crash.
As of the 1st of April 2022, the following pandemic-era measures will no longer apply:
- £10,000 minimum debt value for a winding-up petition procedure to be pursued;
- 21-day notice afforded to debtors before a winding up petition can be put before the court;
- Restrictions on the issuance of winding-up petitions against limited companies for rent debt;
- Ban against commercial landlord evictions; and
- Restrictions on pursuing commercial rent debt recovery.
While it is unclear at this point in time whether the intended outcome was achieved by these measures, what is clear, is that upon expiry of the measures we will see a return to the pre pandemic conditions for pursuing unpaid commercial debts.
Notably, we will see a return to a £750 debt minimum threshold on future winding-up petitions. Creditors will be able to enforce undisputed, unpaid debts from an earlier stage without having to abide by special requirements as previously stated. This lower threshold has been a topic of much discussion between legal professionals. When compared against the court fees for the application (£302) and the required petition deposit (£1,600) that accompany it, the meaning of seeking a usual compulsory winding-up order (UCO) in the face of unresponsive debtor for a mere £750 debt becomes murky, at best.
The official government position on recovery of owed monies has usually placed seeking a UCO as potentially the third step in the list of options available under law to a creditor. Even though mediation is stressed as the best way to recover owed monies, a lot of these UCO petitions are used as a tool to exert pressure on the debtor. Debtor has to come up with the money or offer a payment plan by the time of the hearing to prevent the judge from simply winding-up indebted company.
Some firms have advertised success rates of 81% when using the drafting of UCO petitions to motivate the debtor(s) to avoid litigation and liquidation. In fact, when successful, some firms expect full payment from debtors. This is common practice for a lot of law firms operating in this field as they are simply satisfying a market. What is of note is that the return of the lower threshold will allow for creditors with funds to exert extreme pressure on their debtors from now on.
What is worrying for many is that this imbalance in the current financial climate will mean that a lot of starved creditors will begin pressuring consumer facing businesses in paying their debts as soon as possible. These indebted businesses may be still lacking liquid capital to satisfy a creditor’s demands as consumers have become impoverished and their spending has fallen as a result.
A pessimistic commentor would be led to conclude that in the current financial climate, with the sudden reversion to the old rules of play, small and/or medium businesses are under threat of being liquidated for relatively small sums of money.
On the other hand, a positive pundit would say that this return to the old ways simply acts as a signal from the government to businesses that the situation must return to normal, and creditors and debtors must find a way of managing the financial aftermath of the pandemic without the reliance on governmental moderation. Potentially a serious embrace of the alternative dispute resolution options available on the market may be key to avoiding the mass defaulting of companies that have not yet recovered from the pandemic.
It was also recently quoted in an article saying that:
“Encouragingly, over the last two years we have seen a number of instances where creditors have recognised that engagement leads to better outcomes then enforcement.”
“Many creditors appreciate the climate that businesses are operating in and are willing to have a conversation about how and when they can be paid, but that needs to take place sooner rather than later.”
May and June will shed light into what the reality is and who is correct about the outcome of the government’s decision to allow for these measures to lapse so that business relationships go back to pre-pandemic rules while many are still suffering pandemic economic symptoms.