Business insolvencies are at a low^[1], despite the huge disruption and hardship many businesses have faced through successive lockdowns and social distancing. 

So far businesses have been kept afloat, and in some cases enabled to thrive, by a plethora of government measures and support from the financial sector. Lenders have loaned over £75 billion under the government's Covid-19 loan schemes, in addition to an increasing amount of non-scheme lending and other business support. The government has also provided unparalleled support through the furlough scheme, business rates relief and VAT deferral amongst others.

The current low level of insolvencies may also be influenced by the temporary suspension of directors? personal liability for wrongful trading and temporary prohibition on winding up petitions introduced by the Corporate Insolvency and Governance Act 2020 (CIGA).

So what will happen as the Covid-19 support and temporary suspensions roll off?

And what of the several other major insolvency policy reforms brought in over the last year?

• As well as the temporary suspensions, CIGA introduced the Restructuring Plan with cross-class cram down, ipso facto prohibition on termination of supplier contracts by reason of insolvency, and short-term moratorium. All of these are intended to allow businesses to be rescued/restructured and avoid insolvency proceedings. Will they be effective? How will the financial services exemptions work? Should lenders be concerned about cross-class cramdown? 

• Crown preference has made a partial return. HMRC is now a preferential creditor for unpaid VAT, PAYE and National Insurance, ranking above floating charge holders and unsecured creditors. HMRC is of course owed a substantial amount of VAT from deferrals. How will this affect insolvencies where HMRC is a creditor?  Could it impact lender appetite to provide new finance?

• The Pension Schemes Act 2021 creates two new criminal offences regarding defined benefit pension schemes, both carrying up to seven years? imprisonment or a £1 million civil fine.  The offences are extremely widely drafted and could catch various decisions of lenders or insolvency practitioners. So how are they approaching this?

As part of our upcoming Commercial Finance week, join me on 8 July for a session with a panel of insolvency and business support experts to explore how businesses are faring as we reach the end of Covid-19 restrictions and support, the impact of the key policy reforms and their predictions for the future.