New insolvency legislation is being introduced to help struggling businesses stay afloat during the coronavirus pandemic.
The new rules are designed to protect businesses from aggressive debt recovery measures and stop them going under.
The government introduced the new insolvency legislation on Wednesday, which allows companies time to restructure, refinance and keep trading when they might otherwise go out of business because of unmanageable debts.
This could give a much-needed lifeline to pubs and bars as the hospitality sector continues to struggle through lockdown measures.
Wrongful trading provisions temporarily suspended
These new measures mean that wrongful trading provisions will be temporarily suspended, and directors can continue to trade without the threat of personal liability. Under wrongful trading regulations, it is an offence for a company to continue trading when it knows it cannot avoid liquidation and is designed to protect suppliers and other creditors.
However, thousands of companies have been put in the position of being insolvent due to the coronavirus pandemic and in usual circumstances would have had to close. The suspension of wrongful trading provisions means they can continue to trade whilst still technically being insolvent.
Businesses will not have to adhere to statutory demands from creditors but only if the debt has been caused by the effects of the coronavirus pandemic. And winding-up petitions will also be temporarily paused.
These are likely to be suspended until at least the end of June.
The hospitality sector welcomes the measures
Kate Nicholls, chief executive of UKHospitality, the trade body for bars, restaurants and hotels, said:
“The Bill should provide businesses with some very welcome respite from aggressive landlords and suppliers, and valuable breathing space to restructure their businesses.
“It is very encouraging to see the Government listening to the concerns of tenants and landlords, and acting decisively on what is a complex issue.
“It should give some impetus for bringing landlords to the table to understand the pressures that tenants are facing. The majority of landlords have been cooperative but a minority have aggressively pursued hospitality businesses that are moth-balled, have no revenue and cannot hope to pay.”
Company directors will still have legal responsibilities under wider company law during this time and these duties would remain in place, as would measures in insolvency law to penalise directors who abuse their position.
Business Secretary Alok Sharma said: “This is a particularly challenging time for businesses right across the UK, and we are doing all we can to support them through this period.
“Our proposals have been widely welcomed by business groups. The Bill will help companies that were trading successfully before the Covid-19 emergency to protect jobs and put them in the best possible position to bounce back.”
Insolvencies in the hospitality industry
The hospitality industry has been one of the worst affected sectors during the coronavirus pandemic as bars, pubs, cafes and restaurants were ordered to close back in March. This has caused major cash flow problems, and many have seen their revenue stream dry up completely.
Whilst some measures have been put in place to help out struggling businesses, such as the suspension of forfeiture rights and these new insolvency provisions, It’s likely that many businesses won’t make it through the pandemic and may have to go down the insolvency route, such as a Creditors’ Voluntary Liquidation (CVL).
At Clarke Bell, we’re offering free, no obligation advice to any business who is struggling through this time. Contact us today on 0161 907 4044 for help.