Thousands of UK businesses at risk of insolvency from this week, City auditor warns
Thousands of UK businesses that have struggled during the pandemic are at risk of collapse as the government ends its temporary insolvency measures this Friday, a top audit lawyer has warned.
From Friday, the Government is phasing out its restrictions on winding-up petitions, meaning lenders and creditors can once again legally seek to liquidate a company that they believe is unable to pay their debts.
During the pandemic, the government introduced the temporary measures to protect companies that found themselves in “financial distress” due to the economic situation from creditor action.
After passing the Corporate Insolvency and Governance Act 2020 in June last year to support these companies, the government will begin to phase out the full protections from Friday, but will soften the blow with two new measures designed to help struggling small businesses.
Until the end of March next year, the debt threshold for a winding up petition will be raised to £10,000 and creditors will be required to seek proposals for payment and wait 21 days before winding up.
But despite the allowances made by HMRC, banks and trade suppliers during the pandemic, “too many” businesses are now in jeopardy as these measures begin to taper and they find they have failed to formalise repayment schedules, Mazars partner Rebecca Dacre warned.
“It is in both the business’ and creditors’ best interest to negotiate and directors should contact their business creditors, including suppliers and financial institutions as soon as possible to try and come to an arrangement,” she said.
Companies that are yet to contact HMRC or agree a formal “Time To Pay” arrangement are at a heightened risk of receiving a winding up petition now that the government is tapering its measures – and it’s likely that due to a backlog of petitions accumulated during the pandemic, there will be a jump in the number brought forward after Friday.
“Inevitably HMRC will have to take a tough line against businesses that won’t pay their tax bill and won’t negotiate a rescheduling of that debt,” Dacre said.