Warning for troubled firms as temporary insolvency measures end and insolvencies start to rise

September 21, 2021

Businesses in Bristol are being urged to seek advice if they are concerned about the lifting of temporary insolvency restrictions.

The warning has come from the regional chair of R3, the trade body for restructuring and insolvency professionals, which issued the call after the government decided to begin phasing out its ban on winding up orders by creditors. 

The temporary measures – introduced last June under the Corporate Insolvency and Governance Act 2020 – aimed to protect companies from insolvency during the pandemic.

They will be lifted on October 1, although new measures will be introduced to help companies get back on their feet without facing insolvency over relatively small debts.

The scale of the impending problem can be seen in the latest insolvency figures, which show the pandemic is starting to catch up with businesses as the temporary restrictions end.

Corporate insolvencies increased by 22.9% to 1,348 last month compared to July’s figure, and increased by 71.1% compared to August of last year.

The new measures include:

  • A rise in the debt threshold – the figure at which a creditor can issue a winding-up petition – from £750 to £10,000 or more
  • A requirement for creditors to seek proposals for payment from a debtor business, giving them 21 days for a response before they can proceed with winding up action.

These will be in force until the end of March next year. 

R3 South West chair Philip Winterborne, pictured, who is a partner at Temple Bright Solicitors in Bristol, said: “The government has chosen to taper its withdrawal of support rather than removing it in one go, reflecting the need to balance the interests of businesses with those of their creditors.

“The end of the ban on the use of winding-up petitions, along with the temporary introduction of the new £10,000 debt limit will allow those who are owed significant sums of money to take action against those who owe it.

“At the same time it will prevent viable businesses from facing the threat of winding up petitions over relatively small sums of money.

“While this increase will only be temporary, it’s a significant one compared to the original sum of £750.

“Given the challenges South West businesses have faced during the pandemic, the new limit is a welcome adjustment.”

It is the first time the debt limit has been increased since the introduction of the Insolvency Act in 1986.

Philip said R3 was urging anyone who was concerned about the ending of the temporary insolvency measures to seek advice from a qualified and regulated source, and do it now.

He also said the new insolvency figures highlighted how much tougher the climate was for the region’s businesses and individuals than this time last year – and the toll the pandemic had taken on business and personal finances over the last 12 months.

“The increase in corporate insolvencies was driven by a rise in Creditors’ Voluntary Liquidations (CVLs),” he said.

“Numbers for this process were 115% higher than this time last year and 30% higher than in 2019, which suggests that despite the opening up of the economy, there are a number of company directors who are opting to close their businesses after a year and a half of trading in a pandemic.

“This comes despite the fact that August was one of the better months for businesses since the start of the pandemic. The lifting of the final restrictions and the continued impact of the vaccine rollout means that more people are working, shopping and spending, and that looks set to continue as we enter the autumn.

“However, with the furlough scheme closing at the end of this month, company directors need to be aware of the signs of business distress and seek advice if any of them appear.

“If a South West firm has problems paying rent, staff or suppliers, has other issues with cashflow, or its directors are concerned about its future, now is the time to seek advice from a qualified professional, rather than waiting until the problem has become worse, by which point options may be more limited.”

Comments are closed.


Reach tens of thousands of senior business people across Bristol for just £120 a month. Email info@bristol-business.net for more information.