Updated: 22nd July 2021
The moratorium on winding up petitions and statutory demands has been extended until the end of September 2021, providing relief for business owners from the pressure of potential legal action by creditors.
With so many companies still experiencing extreme financial distress despite extensive government interventions, and attempting to deal with unmanageable debt levels, what does this mean for UK businesses?
Essentially, it provides more time for you and your advisers to decide on the best course of action, and take the necessary steps to avoid insolvency. So what exactly is a WUP moratorium?
Winding up petitions (WUPs) have been banned by the government since the coronavirus pandemic caused unprecedented operational and financial difficulties for businesses across the country.
The devastating effect of the global pandemic on the business world caused previously thriving businesses to suffer catastrophic cash flow issues and placed unparalleled numbers in danger of liquidation.
The moratorium introduced by the government in the summer of 2021 was applicable to businesses in England and Wales that were failing due to the coronavirus pandemic, or that would have failed regardless of Covid-19.
This protective arrangement was due to end on 30th June 2021, so what can you do during this extension period until the end of September to help your business avoid or survive creditor action?
It goes without saying that you should seek reliable insolvency advice from a licensed professional. You’ll be able to assess your best options in the face of financial distress and potential creditor legal action, and take confident steps forward.
Real Business Rescue is the UK’s leading independent business rescue consultancy, and will provide the trustworthy advice you need. The WUP moratorium extension offers more time to take the most appropriate action given the type of business you run, and its current situation.
So what options might you have now the winding up petition moratorium has been extended?
Formally restructuring your company’s debts
Unsecured business debts can be restructured within an instalment plan known as a Company Voluntary Arrangement, or CVA. This is a formal arrangement that is legally binding on your company and all creditors included.
If 75% of creditors (by value of debt) agree the insolvency practitioner’s proposal, and then 50% or more of creditors not connected with the business, also vote in favour, even those that did not agree are bound by the CVA’s terms and conditions.
When a CVA comes into force, all interest and charges on the debts are frozen, and the company pays an affordable amount each month whilst continuing to trade. CVAs are only available for viable a company, however, with viability being determined by the IP’s assessment. A Fast Track CVA process is also available to eligible businesses.
Pre pack administration
Pre pack administration involves the sale of underlying business assets to a trade buyer, or in some cases to the existing directors. The insolvency practitioner must be able to demonstrate that a pre pack sale provides a better return for creditors than any other insolvency process.
Employee contracts are protected by TUPE legislation when a pre pack sale takes place. This is the Transfer of Undertakings (Protection of Employment) regulations, which safeguard employees’ existing working arrangements.
Company administration offers a separate moratorium period of eight weeks so that the appointed IP can find the most appropriate route for the business. This might involve renegotiating the company’s debts within a CVA, for example, or indeed a pre pack sale may be an option.
If a company in administration cannot be saved, Creditors’ Voluntary Liquidation may be the only course of action, in which case the business will close down.
If you would like more information on the winding up petition moratorium and how it can help your business, please contact Real Business Rescue. We can arrange a free, same-day consultation with one of our specialist team, and work from an extensive network of local offices around the country.
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