Government ministers are considering a raft of emergency laws relating to corporate insolvency as the coronavirus outbreak threatens to push large numbers of British companies out of business.
According to Sky News, the possibility of introducing a moratorium on winding-up petitions is being considered, with views on the subject now being sought from insolvency and restructuring professionals.
Any reforms that are deemed necessary or helpful in the coming days could be introduced very quickly through emergency legislation.
Prominent bodies including the Confederation of British Industry (CBI) and the Institute of Directors are said to be among those pushing the government to urgently reform the way that insolvency laws work in the UK.
In Germany, emergency laws have already been introduced to stipulate that winding-up petitions are effectively banned for the duration of the COVID-19 crisis.
The Insolvency Service has said that it is working closely with the government to devise ways, besides using legislation, to support businesses during what for many will be a very stressful and difficult time.
It’s hoped that some of the measures already introduced by government, including the option to defer VAT payments and a moratorium on commercial property evictions for non-payment of rent, will go some way towards stemming the flow of corporate insolvencies that might otherwise be expected.
Plus, companies have been told that they will be able to furlough their workforces for several months and have the bulk of their wages covered by a government-backed jobs retention scheme, which for many will mean the difference between remaining viable and becoming insolvent.
Sky News reports that emergency changes to insolvency rules could see creditors legally prevented from presenting winding-up petitions to companies whose directors can trigger a 90-day grace period by stating that they’re experiencing temporary financial challenges as a result of the COVID-19 situation.
These and other potential new rules have been outlined in a paper submitted to the Insolvency Service by the City of London Law Society.
It’s clear that large numbers of businesses are likely to come under severe pressure in the coming weeks and months, with figures from Begbies Traynor suggesting recently that there were already more than half a million UK companies in financial distress even before the coronavirus situation started to have an impact.