As the realm of repayment approaches, transformation ambitions must move swiftly to action

The UK Government’s Insolvency Service announced last week that temporary insolvency measures for businesses will start to be removed from 1 October.

This represents another fast-approaching milestone for businesses in the shift towards recovery – and repayment – after many months of pandemic-related protection.

In its purest form, creditors will be able to serve a debtor a winding up petition for unpaid debts, particularly notable for those organisations on the retail high street and in the hospitality industry. Both industries have felt the full force of COVID-19 from the flatlining of footfall during numerous periods of enforced restrictions.  

However, the finer details will prevent – or at least delay – a tidal wave of winding up petitions being submitted at the start of next month.

New legislation also has been passed allowing smaller businesses more time to recover a more positive trading position. The current debt threshold has been raised to £10,000 or more for a winding up petition, while creditors must also seek out proposals for payment from debtor businesses within a 21-day period before proceeding with winding up action. The new measures will remain in place until the end of March 2022, aligning with the same date announced in June protecting commercial tenants from eviction.

COVID causation remains key

The quantifiable impact of COVID-19 will also continue to play an important role, as further protection may apply to outstanding rent should organisations be able to demonstrate that the reason for their inability to pay is due to the pandemic. However, this is likely to emerge as a grey area and be subject to differing interpretation from landlords and tenants. There is also extended cover against rent due from periods of forced closure, allowing more breathing space for businesses that did not trade physically during lockdowns.

While the increase to the debt threshold and the other measures above will buy more time for financial health improvements to be made at organisations from any industry, progress should be well under way with regard to developing plans of action that build creditor confidence for the longer term.

The evolving timeframes for debtor support will no doubt bring the short-term relief that is economically essential for many businesses who are still finding their feet again as the country as a whole does the same. But any thoughts to financially kick the can down the road should quickly be substituted for a sharp focus on demonstrating balance sheet viability and an operating model that is strong enough to be sustained after the final deadlines have passed.