Over the last year there have been a raft of measures introduced, both permanent and temporary, that seek to minimise or mitigate the hardship faced by companies that find themselves in financial difficulties either as a direct result of the COVID pandemic or more generally.
Some of the temporary measures that were put in place, such as the restrictions on winding up petitions, the prohibition of forfeiture of commercial leases for non-payment of rent and the use of CRAR (commercial rent arrears recovery), were due to expire on 30 June 2021. The government has just announced that these measures will be extended, with the prohibition on commercial lease forfeitures and possibly the use of CRAR being extended until 25 March 2022. The restrictions on winding up proceedings are being extended for a further three months, until the end of September 2021.
Communities Secretary Robert Jenrick has stated that legislation will be introduced to ringfence outstanding unpaid rent that has built up when a business has had to remain closed during the pandemic. Landlords are expected to make allowances for the ringfenced rent arrears from these specific periods of closure due to the pandemic and share the financial impact with their tenants.
It was also stated that a binding arbitration process will be put in place so that commercial landlords and tenants can come to a formal agreement in relation to those arrears. This will be a legally binding agreement that both parties must adhere to. We wait with bated breath to see exactly what these measures will look like.
The permanent measures introduced to assist businesses included a new restructuring plan process, a prohibition of the termination of supply contracts for reasons related to insolvency, and a stand-alone 20-day moratorium to give companies some breathing space from creditor action to consider some form of restructuring or rescue plan.
By contrast, the measures put in place to protect individual debtors have largely focused on preventing residential evictions taking place during the pandemic. These measures included a ban on evictions save in limited circumstances until 31 May 2021, and increasing the notice periods for no fault and fault-based evictions from two to six months and now down to four months, very generally speaking. There were, however, no restrictions placed on issuing bankruptcy petitions against individuals, and until relatively recently there was nothing akin to the stand-alone moratorium for businesses. However, since 4 May 2021, a new Debt Respite Scheme has come into effect in England & Wales.
Breathing Space
The Debt Respite Scheme is designed to give individuals struggling to pay their debts a “breathing space”, so that they can seek debt advice or implement a repayment plan.
Most debtors will have the option of using what is known as the “standard breathing space”. A “mental health crisis breathing space” can also be put in place by a mental health professional, to protect someone during a mental health crisis, but it is intended only to be used rarely.
The standard breathing space allows debtors a 60-day period of protection from action taken by creditors to recover amounts owed and stops all late payment penalties or interest accruing during this period.
Not all debts are affected by the breathing space. Some debts are excluded, such as student loans, damages payments, child maintenance and fines or penalties for offences.
The standard breathing space is not a payment holiday. All ongoing liabilities must be paid as they fall due, such as mortgage payments, rent or utilities payments. If the debtor cannot pay their ongoing liabilities, then a breathing space is not appropriate.
A breathing space can only be initiated by an authorised debt advisor, whose responsibility is to ensure that its use is appropriate, and that the debtor is eligible to use it.
If a debt advisor agrees that a breathing space is appropriate, then the Insolvency Service will be informed, which will add the debtor to a register and attempt to notify all creditors.
A creditor receiving notice should identify all debts owed by the debtor, which would be caught by the breathing space. A debtor may not have notified his adviser of all of them. Once all the relevant debts have been identified, the creditor must:
- Cease demanding payment of the debt from the debtor, unless leave from the court has been granted to do so.
- Freeze any late payment penalties or charges and interest on the debt.
- Cease any enforcement action in respect of the debt, which includes starting any legal proceedings against the debtor or the enforcement of a judgment order.
- If a court hearing in respect of the debt is already in the diary, the court will adjourn (postpone) the matter for 60 days.
- If a bankruptcy petition has been started by creditors, the court will stay those proceedings until the breathing space ends or is cancelled.
A creditor can ask a debt adviser to review the breathing space, or specific debts being included only if:
- The breathing space unfairly prejudices the creditor’s interests. For example, if there has been any discriminatory treatment.
- The debtor does not meet at least one of the eligibility criteria.
- Any of the debts included in the breathing space do not qualify.
- The debtor has enough funds to repay their debts.
A creditor must ask for a review within 20 days of the breathing space commencing, or within 20 days of an additional debt being added to the breathing space. To request a review, the debt adviser must be given a written statement giving the reasons for the request along with any supporting evidence.
For more information and to find out how we can help you, please contact us on 0345 646 0406 or fill in our online enquiry form and a member of our Team will be in touch.