Skip to main content
Experts

Temporary 'insolvency related measures' in light of COVID-19 extended once more – The impact for retailers and their supply chain

It appears that landlords will, after the 30 September 2021, be able to issue a winding up petition against tenants for unpaid rent.

On 16 June 2021, the UK Government announced further extensions to the Corporate Insolvency and Governance Act, first passed in March 2020 (“CIGA”), and the Coronavirus Act 2020 and proposed further new restrictions on landlord action. Read our commentary on the implications for landlords and tenants.

Extension Of Existing Restrictions Under CIGA (The “Insolvency Restrictions”)

The measures which continue until 30 September 2021 are:

  • Statutory demands and winding-up petitions are restricted, to protect companies from creditor enforcement action due to debts related to COVID-19;
  • Small suppliers will not have to continue to supply a business in insolvency; however, larger suppliers will not be able to cease their supply or ask for additional payments whilst a company is going through a rescue process; and
  • Entry into a moratorium will remain relaxed, and a company will be able to enter a moratorium if they have been subject to an insolvency procedure in the previous 12 months.

It is not yet clear from the Government’s press release whether we can expect an extension of the suspension of liability for wrongful trading and the relaxations for Extraordinary General Meetings and voting arrangements.

Statutory demands and winding-up petitions

The Insolvency Restrictions were put in place in order to provide a ‘breathing space’ for businesses in relation to COVID-19 debts. Accordingly, a creditor is unable to pursue a winding up petition, unless it can prove:

  • That the company is ‘unable to pay its debts’ within the meaning of the Insolvency Act 1986 (the “IA 1986”), or that the company is balance sheet insolvent; and
  • That it has reasonable grounds for believing that this would have arisen even after any worsening of the company’s finances as a result of COVID-19 is ignored.

It is not yet clear from the Government’s press release whether we can expect an extension of the suspension of liability for wrongful trading and the relaxations for Extraordinary General Meetings and voting arrangements.

Implications for retailers and Supply Chain considerations

Suppliers should consider their contractual obligations under existing agreements and monitor customers that may be facing distress. The extension of the Insolvency Restrictions will mask financial problems of companies heavily impacted by the pandemic. Therefore prudent but fair with arrangements would be advisable; for example, for substantial orders, payment on account may be requested (if within existing contractual parameters and allowed by the legislation).

Cashflow in supply chains will continue to be of paramount importance as customers and suppliers also look to near-shore supply chains in order to reduce the impact of macro events (Coronavirus, Brexit, the Evergiven). The various Government grants and concessions provided to those in the retail and leisure sector have no doubt assisted and, indeed, some high street retailers and leisure operators have used this time as an opportunity to shore up their supply chains and suppliers terms. Keeping abreast of issues regarding supplier insolvencies and being able to identify signs of distress will be key in these sectors to ensure disruption is minimised.

Insolvency v forfeiture of lease

It appears that landlords will, after the 30 September 2021, be able to issue a winding up petition against tenants for unpaid rent (unless those restrictions are further extended), but that it will not be possible for landlords to forfeit for non-payment of rent until 26 March 2022. This may bring about a surge of landlord petitions in October with the intention of obtaining winding up orders and subsequent disclaimer of leases by the Official Receiver/ Liquidator. Whilst the restrictions remain in place, landlords are increasing likely to issue County Court recovery proceedings with a view to obtaining judgments for unpaid rent. Whilst the restrictions remain in place, such judgments cannot be used to accelerate forfeiture but may be used as a means of applying further pressure on tenants.

This article is not intended to, and does not, constitute legal advice.

Please contact Matt Williamson, Head of retail and leisure, for further guidance and support on matters impacting the retail and leisure industry and wider supply chain issues.

Sectors and Services featured in this article

Share on Twitter