Since COVID-19 restrictions on businesses were first imposed in March 2020, the UK Government has repeatedly extended their schemes to protect debtors from both insolvency and property enforcement action by their creditors. In April the Government launched a consultation on what should come next when those schemes are scheduled to expire on 30 June 2021. With so many UK businesses, especially in hospitality and leisure, facing that cliff-edge when their protection from enforcement by their creditors fall away, the consultation was an excellent opportunity for those businesses to explain their concerns to the UK Government and to influence what protections may be put in place to support businesses from 1 July 2021.
By Victoria Hobbs, Matthew Pack and Anna Mikhalkovich
The UK Government’s restrictions on legal remedies for debtors whose invoices have remained unpaid due to the COVID-19 pandemic are due to expire on 30 June 2021. Whilst the Government has extended the expiry date three times, it is widely expected that this will be the last time, leaving many businesses hardest hit by COVID-19 vulnerable to new enforcement action from their suppliers, landlords and service providers from 1 July 2021.
While they have been most used by businesses in the retail and consumer sector (and especially hospitality and leisure), since March 2020, the UK Government’s moratoria have actually protected all businesses with debts attributable to, or which remain unpaid because of, COVID-19 and related restrictions.
The Government’s package of measures which will end on 30 June 2021 include:
These and other measures have allowed many businesses vital 'breathing space', alongside other schemes such as furlough and business rates relief, and have been vital in avoiding insolvencies and (even greater) job losses, especially in hospitality and leisure. We have advised many of our clients on what might come next – or whether the Government will allow this safety net to disappear entirely.
On 6 April 2021, the Government launched a consultation and call for evidence/survey to gather industry and interested stakeholders’ views on what, if anything, should replace these measures from 1 July 2021.
The Consultation was partly a fact-finding exercise for the Government, and participants were asked to fill out a fairly comprehensive survey of what impact COVID-19 and related restrictions have had on their business and how removal of the protective measures will affect them from 1 July 2021.
The Consultation also put forward six options which the Government is considering to take the place of the current measures from 1 July 2021. Those options are:
The fact that this Consultation has been launched is of course a positive step, and shows that the Government does not expect all businesses to be out of danger after the lifting of national restrictions fully by the planned date of 21 June 2021 (although it now seems that date may well be pushed back). The Government appears to recognise that many businesses hardest hit by the pandemic will continue to face significant cash flow challenges even once restrictions are lifted.
The fact that the Government is also considering making the protections from remedies more targeted depending on the debtor’s industry is a clear sign that the Government is recognising the extent of the debt mountain which has grown throughout supply chains and across practically every industry and sector during the pandemic. This could suggest that the Government is preparing to withdraw support on a set timetable whilst favouring particular industries for longer, in the same way as the general roadmap out of lockdown, and a natural expiry of any remaining measures could well be the expiry of furlough later in 2021.
One alternative route which the Government has not even hinted at exploring is a model adopted in Australia, where reduced rent payments are being imposed on defaulting tenants, so that the landlord and tenant share the pain. The UK Government has historically been reluctant to interfere in commercial parties’ contracts and reduce the rent arrears, and instead focussed on limiting the landlord’s remedies to enforce the debt. We therefore think this other route is unlikely to be taken up by the Government, as it would be a departure from its strategy to date, despite calls from several prominent retailers in the UK to explore this further.
Now that the consultation period has ended, those in the hospitality and leisure sector can only wait to hear what, if anything, the Government decides to do to soften the cliff-edge.
Victoria Hobbs is a Partner; Matthew Pack is a Senior Associate; and Anna Mikhalkovich is a Trainee Solicitor, all in the International Dispute Resolution Group at Bird & Bird LLP