What is available to stop creditors taking action against the company to recover debts during the current crisis?
The government has announced a number of measures to try to protect businesses during the current period of uncertainty. However there is no outright ban on creditors being able to take legal action to recover money they are owed, though there are temporary restrictions on some forms of legal action, like winding up petitions.
However, it is important to note that these measures only relate to winding up proceedings. Creditors will still be free to commence county court claims.
The new Corporate Insolvency and Governance Act 2020 brings in a new “moratorium” procedure. Businesses in financial difficulty that are viable and can be rescued will now be able to work with an insolvency practitioner to obtain at least 20 business days’ breathing space from creditors to allow the business to formulate a plan to deal with its financial problems.
For more information on the Corporate Insolvency and Governance Act, click here
As part of the raft of measures put forward by the government over recent months, there are also restrictions on landlords taking action to evict commercial tenants who miss rent payments. Various payment holidays and forbearance have been put in place in respect of certain tax liabilities and some business rates.
If your business is going to go into an insolvency process like administration or a company voluntary arrangement, there is the ability to obtain a freeze on creditors taking action whilst those procedures are put in place. However, these sorts of moratoriums will not be available to everyone and in any event not unless an insolvency process is being instigated.
Regardless of whether a business has formal protection from creditors or not, engagement with creditors and trying to reach agreement with them to deal with the debt is therefore vital. Much of the protection measures that the Government has introduced like curbing the ability of landlords to evict a commercial tenant, do not wipe out the debt. They simply prevent action being taken or a payment becoming due for a short time. All businesses should use that time to consider how those debts can be dealt with and engage with the relevant stakeholders sooner rather than later.
Related FAQs
On 18 March 2020, the Government announced that it would pass emergency legislation which would prevent landlords, both social and private, from bringing possession proceedings against tenants who are unable to pay their rent. The Housing Secretary, Robert Jenrick, stated that “no renter who has lost income due to coronavirus will be forced out of their home, nor will any landlord face unmanageable debts.”
The announcement came after several organisations, including housing charity Shelter, expressed concerns that more than 50,000 households could face possession proceedings due to the economic uncertainty following the Covid-19 outbreak.
Almost two thirds of hearings conducted in the Civil Court will occur in person over the next few months as the Civil Court sees an influx in cases.
The Courts
In the Business & Property Courts, cases have been dealt with consistently since the start of the pandemic, except for trials that run for longer than 10 days in the Commercial & Admiralty Court. The Queen’s Bench Division and Administrative Court are also running as normal. If your case is listed for one of these courts, you do not need to be concerned that your case may take longer than anticipated, with conclusions still being reach at the normal rate.
Hearings
Since the start of the pandemic, most hearings have been conducted online through various platforms such as Skype for Business and Cloud Video Platform. The courts are of the view that remote hearings tend to take longer than those that are held in person. As a result, if your case is due to be held in person, the case may be heard in less time. HM Courts and Tribunals Service stated that:
“Wherever possible we will look to facilitate face-to-face hearings, but our expectation is that remote hearings will continue to play an important role for the foreseeable future, given that social distancing will continue to limit courtroom capacity compared to pre-Covid levels.”
More courtrooms have become available since the start of the pandemic, resulting in more facilities for cases to be heard in person, which will have the aim of helping to rid of the backlog of cases, along with remote hearings being conducted too, which is a welcome step forward.
Approximately 300 additional support staff will be employed for remote hearings before the end of 2020, enabling better service with remote hearings. The Government has decided that some civil judges will have the option to extend operating hours for cases to be held in the evenings and on weekends too, which may be most suitable for small and fast-track claims, resulting in a potentially faster outcome. The efficiency of all the new measures are being monitored and changes are being implemented, such as increasing the capacity of the Small Claims Mediation Service.
Small Claims Mediation Service
With claims of a lower value, a high proportion of cases successfully settle outside of court, therefore, if you have a small claim, the mediation service may be suitable for your case. Mediation involves a trained impartial third party, with the parties to the case discuss the dispute with the assistance of the third party, aiming to reach a settlement. Now with the increased capacity, it may make the mediation service more accessible, meaning that an agreement can be reached more swiftly rather than waiting for the matter proceed to a hearing.
The courts have stated that:
“We aim to increase capacity to accommodate 90% of parties who want mediation, rather than the current 40%. We are recruiting additional mediators and restructuring ways of working to achieve this.”
This is a positive shift for those with small and fast-track claims where legal costs ought to be kept to a minimum. Settling by mediation removes the need for trial costs, amongst other costs, and has additional benefits such as the matter being dealt with more amicably.
The Government announced on 22 June 2020 that it would be making provisions to enable planning permissions that have lapsed since 23 March 2020, and those that are due to lapse before the end of 2020, to be automatically extended.
The Government’s detailed proposals are set out in section 17 of the Business and Planning Act 2020, which entered the statute books on 22 July 2020. If a relevant planning permission is subject to a condition which requires the development to be begun no later than between 19 August 2020 (when section 17 of the Business and Planning Act 2020 will come into effect) and 31 December 2020, the condition is automatically deemed to instead provide that the development must be begun no later than 1 May 2021.
The Act also makes provision for any conditions requiring development to be begun between 23 March 2020 and 19 August 20202 to be extended to 1 May 2021, although this is not automatic. Where the provisions have such retrospective effect, an application is required to the local planning authority. The local planning authority are only able to grant approval, however, if they are satisfied that any EIA and habitats assessments continue to be valid. Deemed approval provisions will apply if the local planning authority do not determine any application within 28 days. The local planning authority are not able to approve such applications after 31 December 2020 so applications should be made in good time in advance of this date. There is the possibility of an appeal against the local planning authority’s decision but notice of the appeal must be submitted before 31 December 2020.
The Act includes similar provisions in relation to both detailed and outline planning permissions.
These periods are often mistakenly referred to as minimum lengths of consultation (especially by Trade Unions). That is not correct. Consultation can commence, conclude and notices of dismissal be issued within the 30 and 45 day periods. The expiry of the notice would just have to be outside of those restricted periods.
The scheme is being administered by HMRC under a new online portal that has been set up. It applies to businesses, charities, recruitment agencies, individuals who employ a nanny, administrators (where there is a reasonable likelihood of re-hiring the workers) and public authorities.
All employers with a UK payroll can apply as long as you have:
- Created and started a PAYE payroll scheme on or before 28 February 2020
- Enrolled for PAYE online (which can take up to 10 days)
- A UK bank account.
To make a claim you will need:
- The number of employees being furloughed
- The start and end date of the claim
- The name and National Insurance Numbers for each furloughed employee
- Your employer PAYE reference number
- To be registered for PAYE online
- The Self-Assessment Unique Taxpayer Reference, Corporation Tax Unique Taxpayer Reference or Company Registration Number as appropriate for your entity
- Your UK bank account details and sort code
- Your name and contact number
- Your organisation’s registered name
- Your organisation’s billing address
- The full amounts you are claiming for including:
- Employee wages
- Employer national insurance contributions
- Employer minimum pension contributions
For claims for those who are flexibly furloughed you will also need:
- the number of usual hours the employee would work during the claim period
- the hours the employee has worked or will work during this period
- you will also need to keep a record of the number of furloughed hours that the employee has or will be furloughed for.
You will need the above information ready before you access the system to make a claim. You will also need to have calculated the amounts claimed in advance as the application needs to be completed in one session. You can currently save one draft of the application and it must be completed within 7 days of starting it.
The Government has issued a step-by-step guide for employers who wish to make a claim under the scheme which can be found using the link below. It contains useful information about calculating the payments claimed. You will need to register for a Government Gateway ID and password if you do not yet have one in order to access the portal.
If you use an agent who is authorised to act for you for PAYE purposes, they will be able to make a claim on your behalf. If you use a file only agent (who files your RTI return but doesn’t act for you on any other matters) they won’t be authorised to make a claim for you and you will need to make the claim yourself. A file only agent can assist you in obtaining the information required to make a claim (listed above). If an agent makes a claim on your behalf you will need to tell them which bank account you would like the grant to be paid into.
For claims for fewer than 100 employees you will need to input the details separately for each employee. If claiming for more than 100 employees you can upload a file with the information instead. The file should include the following information for each furloughed employee: name, National Insurance number, claim period and claim amount, payroll/employee number (optional). You will also need to include details of hours normally worked, actual hours worked and hours furloughed for those who are flexibly furloughed.
The need to demonstrate the impact of coronavirus on your business is not one of the criteria listed above about who can make a claim, so the government does not appear to intend to set a specific test to determine if a business is “severely impacted by coronavirus”. You are not required to explain the impact of Coronavirus on your business when submitting your claim.
HMRC will retain the right to audit any claim retrospectively. You must keep records for 6 years including:
- the amount claimed and claim period for each employee
- the claim reference number
- you calculations for each claim
- details of hours usually worked and hours actually worked for flexibly furloughed employees.
You must tell your employees that you have made a claim under the scheme, and you must continue to pay their wages during this time.