The pandemic has seen businesses given unprecedented protection from their creditors, with the prohibition of Winding Up Petitions and all forms of debt enforcement by commercial landlords throughout most of the crisis, while HMRC has offered its tummy to be tickled by deferrals and is now granting Time To Pay (TTP) deals for up to five years.

Winding Up Petitions are back

Unfortunately, creditors are starting to bare their fangs now that Winding up Petitions are back in the debt collection toolkit. The initial process remains clunky and full of delays, but 48 companies were wound up in December 2021. Data from Infolink Gazette suggests that there were 128 applications for Winding Up Petitions in January 2022 and then 122 in the first two thirds of February, so the trend is rising sharply, even if it is from a low base. The expectation is that there will soon by 250 applications a month and then more as the year progresses.

Creditors: Landlords

Landlords have been the creditor group most seriously affected by government measures during the crisis, although they have collected significant rent arrears and agreed many deals with tenants. Nevertheless, current estimates suggest there is still £7.5bn in unpaid commercial rent. The current prohibition ends at the end of March 2022, when new legislation is scheduled to take over to require mandatory arbitration for all remaining Covid-related arrears.

There is a dangerous misconception about the scope of this ongoing protection. The new scheme does not apply to all arrears; instead, it applies only to rent debts related to ‘protected periods’ when a business was closed mandatorily under government Coronavirus regulations. Accordingly, some significant rent arrears will be exposed to landlord enforcement from 25 March 2022.

The challenge? High liability levels

As Liquidations and Administrations rise, the anecdotal evidence is clear that the companies now failing are those seriously over-indebted through taking on extra borrowings during the crisis, usually through the various government-backed loan schemes. It is now some time since the initial repayment holidays ended, so that their cash flow is being throttled by debt obligations and requirements to reduce legacy liabilities like HMRC arrears.

Responding to creditor pressure

Now there’s no hiding place, how should struggling businesses cope with mounting creditor threats? The only answer is to be totally realistic about their financial position and future prospects, but most importantly of all, about their cash flow profile. Hoping for something to turn up won’t cut it.

Business debt support – get expert advice and get it early

Creditor attitudes to debt negotiations have been changed radically by their experiences and their frustrations during the crisis. Businesses need to access advice from those who know what has become the new normal and what is achievable.

They should also use this expertise to put together an honest assessment of the financial profile and to identify the options available. This is very definitely a ‘do now’ task, before creditor action starts to take away the positive ways forward.

If your business is affected by these issues, Opus is here to help. We have extensive experience of these scenarios. One of our Partners would be more than happy to have a non-obligatory confidential chat with you.  We can be contacted at rescue@opusllp.com or call us on  020 3326 6454 and we will arrange for a call with one of our Partners.

Alternatively, you can select and date and time for a confidential chat below: