Debt, debt recovery and coronavirus

In this section you'll find information and updates related to coronavirus that are relevant to the law on debt and debt recovery.

The UK's response to coronavirus is changing regularly and often very quickly. While we'll continue to make every effort to keep this page up to date, there may be short periods where what you read here is not the latest information available. Where possible we've tried to provide links to official sources, so you can check the current situation.

Financial support for struggling businesses

Support is available from the UK government and the devolved administrations for businesses and self-employed people. We've highlighted some of these schemes below. For a complete list, visit the main business support pages for the UK, Wales, Scotland and Northern Ireland

There is also a Coronavirus business support finder that you can use to find help that's available in your particular circumstances.

Restart Grant Scheme

Under this scheme, non-essential retail businesses in England that will be able to re-open in April 2021 will be eligible for grants of up to £6,000 for each retail premises. Businesses in the hospitality, leisure, personal care, and fitness industries forced to remain closed until a later date could get grants of up to £18,000.

Coronavirus Job Retention Scheme

This financial support scheme has been extended to 30 September 2021. See our Coronavirus (COVID-19) Employment section for more on this.

Help for tenants who can't pay rent

Temporary measures have been put in place to protect commercial and residential tenants who are unable to keep up with rent payments. See our Coronavirus (COVID-19) Property section for more on this.

Recovery Loan Scheme

The Recovery Loan Scheme is available until the end of 2021. Businesses of all sizes can apply for loans of between £25,000 and £10 million.

The attraction of this scheme is that a borrower's main private residence can't be used as security for repayment of the loan and the borrower will not need to sign any personal guarantees for any loan amount of £250,000 or less. However, to ensure that lenders will have the necessary confidence under these conditions to lend to businesses, the government guarantees 80% of the finance to the accredited lenders.

Self-Employment Income Support Scheme (SEISS) Grant Extensions

This is a UK-wide scheme to provide support for the self-employed (including members of partnerships). The original SEISS was split into 2 grants and then extended by a further 2 grants lasting for 6 months from November 2020 until April 2021. A fifth and final grant covering the period May to September 2021 has since been announced.

Qualifying for the schemes

To qualify you must declare that:

• you're currently actively trading and that you intend to continue to do so; and
• you believe that you have been impacted by COVID-19 in a way that will significantly reduce your profits.

You must also:

• be a self-employed individual or a member of a partnership;
• (for the 4th grant) have submitted your self-assessment tax return for the tax year 2019-2020;
• (for the 4th grant) have traded in both the 2019-2020 and 2020-2021 tax years and submitted your tax return by 2 March 2021; and
• have trading profits of £50,000 or less.

These are not all the criteria you have to meet to be eligible, so check them here.

How much can you claim

The 4th grant will be paid in a single taxable instalment, covering 80% of average monthly trading profits for the period from 1 February 2021 until 30 April 2021 (capped at £7,500). You have to wait for HMRC to contact you with your personal claim date, which will be around mid-April 2021, before you can claim under this grant.

The 5th grant will also be paid in a single taxable instalment covering the period May to September 2021. The amount you can claim under the 5th grant will depend on the turnover reduction you suffered in the period April 2020 to April 2021. If the reduction in turnover was 30% less, then you can claim 80% of 3 months' average turnover (capped at £7,500). If the reduction was less than 30%, you can claim 30% of 3 months' average trading profits (capped at £2,850). More precise details of the 5th grant will be made available by the government before July, when claims under this grant will open.

Temporary insolvency law changes

The Corporate Insolvency and Governance Act 2020 temporarily amends insolvency law to give struggling companies breathing space and help them to keep trading while they explore rescue options.

New moratorium

The Act creates a new moratorium intended to give companies breathing space to explore options for survival.

The directors of an eligible company can get a moratorium by filing relevant documents at court. Normally, a company with an outstanding winding-up petition would need a court order to apply for a moratorium. But before 30 September 2021, they will also be able to simply file papers at court.

There must also be a statement from an insolvency practitioner (the monitor) that, in their view, it is likely that the moratorium would result in the rescue of the company as a going concern.

The initial moratorium lasts for 20 business days. The directors can extend the moratorium for a further 20 business days, provided they can – among other things – confirm that all moratorium debts have or will be met. Further extensions (up to a maximum of 1 year) require the consent of creditors. The court may also extend the moratorium. There does not appear to be a maximum extension period if the extension is granted by court order.

During the moratorium

• Creditors can't take enforcement action for pre-moratorium debts, i.e. debts that have fallen due before or fall due during the moratorium. However, there are some exceptions, including amounts payable for goods/services supplied during the moratorium, rent for the period of the moratorium, salaries, and debts or other liabilities involving financial services.
• No insolvency proceedings can be started against the company during the moratorium period, though the directors can still start them via the monitor.
• No creditor can enforce security or repossess goods in the company's possession, unless they get the court's permission. No proceedings or legal process can be started or continued, and a landlord can't exercise a right of forfeiture by peaceable re-entry. The moratorium prevents a floating charge from becoming a fixed charge (i.e. crystallising) and stops restrictions being imposed on the disposal of assets.
• The monitor must ensure that it's appropriate for the moratorium to stay in place, and sanction certain acts by the company. The monitor must end the moratorium in certain situations, e.g. if the company's rescue is no longer likely, or if the company can't pay its moratorium debts.

Creditor protections

There are protections for creditors (or members) of the company to apply to court for relief on the grounds that the management of the company's affairs, business and property unfairly harms their interests.

Eligibility

Companies are generally eligible, unless they:

• are a financial service company;
• are already subject to a formal insolvency proceeding;
• have already been subject to a moratorium during the 12 months prior to the filing date (unless the court orders otherwise); or
• have already been subject to a Company Voluntary Arrangement or administration during the 12 months prior to the filing date (although until 30 September 2021, this restriction is lifted to account for the impact of COVID-19).

New restructuring plan

Under the Act, a restructuring plan can be proposed between a company and its creditors (and/or members) for the purpose of dealing with financial difficulties.

This will apply to any company liable to be wound up under the Insolvency Act 1986 that has encountered (or is likely to encounter) financial difficulties that affect its ability to carry on business as a going concern.

Any creditor or member whose rights are affected by the plan must be allowed to participate in the process, and be given enough information to vote on the plan. However, those with no genuine economic interest in the company can be excluded.

The voting majority for each class is 75% in value. If passed, the plan has to be approved by the court, who will assess whether it's just and equitable. However, it's also possible for the court to sanction the plan where a class has voted against it. It can do that if:

• the members of the dissenting class would be no worse off under the plan than they would be in the event of the relevant alternative; and
• at least one class who would receive a payment (or would have a genuine economic interest in the company in the event of the relevant alternative) voted in favour.

'Relevant alternative' is whatever the court considers would be most likely to happen if the plan were not sanctioned.

Where a plan is proposed within 12 weeks of the end of the new moratorium period, it can't affect the rights of creditors in respect of either moratorium debts or pre-moratorium debts that weren't subject to the moratorium restrictions.

Restrictions on statutory demands and winding-up petitions

The Act temporarily:

• prevents certain statutory demands made by creditors from being effective, and
• stops winding-up petitions from being brought against a company on the grounds that it can't pay its debts (or a winding-up order being made on those grounds), if the inability to pay is the result of COVID-19.

This applies to any statutory demand served between 1 March 2020 and 30 June 2021. It prevents them forming the basis of a winding-up petition presented at any point after 27 April 2020.

A petitioner can still present a winding-up petition against a company if they have reasonable grounds to believe that the inability to pay is not the result of COVID-19.

Likewise, a court could still make a winding-up order if it's satisfied that the debts would have arisen even if COVID-19 had not had a direct financial effect on the company.

These restrictions will apply retrospectively. That means existing winding-up orders will be cancelled if they were made for coronavirus-related reasons between 27 April 2020 and 26 June 2020 (the date the Act was passed).

For winding-up orders that were based on petitions presented between 27 April 2020 and 30 June 2021, the commencement date of the winding-up will be the date of the order, not the petition. This will have a number of knock-on effects, including that dispositions of property by the company made after the date of the petition will not be automatically void, as they would be otherwise.

Protection of supplies of goods and services

Contracts for the supply of goods or services will often allow suppliers to take action if the company they're supplying becomes subject to an insolvency procedure, e.g. by allowing them to end the contract. This helps the supplier to manage the risk of continuing to supply the goods/services but not getting paid.

The Act provides that certain suppliers won't be able to make use of such clauses. This applies even if the right to end the contract arises before an insolvency procedure, but wasn't taken up (the right is suspended when the insolvency procedure begins).

This restriction doesn't apply where the company or supplier is involved in financial services, including insurance companies and banks.

There is a temporary exemption, which began on 26 June and lasts until 30 June 2021, for suppliers that are defined as small entities. Broadly, a supplier is a small entity if at least 2 of the following 3 conditions apply to its most recent financial year:

• Its turnover wasn't more than £10.2m.
• Its balance sheet assets total wasn't more than £5.1m.
• Its average number of employees wasn't more than 50.

(If the supplier is in its first financial year, these conditions are adjusted accordingly.)

If a supplier isn't a small entity, there are still exceptions. They can still end the contract if:

• the company stops paying them (provided the contract allows that); or
• the company agrees; or
• a court allows it, which it can if it's satisfied that continuing the contract would cause the supplier hardship.

Bankruptcy help for debtors (Scotland)

There are changes in law that mean those with significant debts have more flexibility to apply for bankruptcy and more protection from creditors.

We've listed the main changes below, but see the Accountant in Bankruptcy website for more information.

Temporary changes

The following changes apply until 30 September 2021.

Moratorium extension

A moratorium is the period during which those owed money can't take any formal action against those who owe it. The purpose is to give those in debt time to consider their options and get appropriate advice.

The moratorium starts on the date on which an individual or other eligible entity gives the Accountant in Bankruptcy (AiB) notice that they intend to apply for bankruptcy (also known as 'sequestration'). It now ends after 6 months, rather than the usual 6 weeks. It's also now possible to give notice to the AiB more than once in a year.

If you're thinking of making use of this, keep in mind that if a moratorium is approved, your details will be published on the public Register of Insolvencies and this will probably affect your credit score.

Creditor petitions

Creditors can now only apply to court to make an individual or entity bankrupt (also known as 'sequestration') if they're owed £10,000 or more. The previous limit was £3,000.

Permanent changes

Minimal Asset Process (MAP) bankruptcies

MAP bankruptcies are designed to be a simpler process for those on lower incomes and with few assets. Previously, you couldn't make use of MAP if your debt exceeded £17,000, but that threshold has now been raised to £25,000. Any student debt you have is ignored for the purposes of calculating this total. Also, the MAP application fees have reduced from £90 to £50 and have been removed entirely if you receive certain benefit payments.

Digital signatures

All forms in the bankruptcy process (except Form 9) prescribed by the Bankruptcy (Scotland) Regulations 2016 can now be signed using an electronic signature.

Court action

Businesses can still take court action to resolve disputes during the pandemic, provided you're not a landlord taking action in response to rent arrears. It's likely claims will take longer than normal.

If your claim is already in progress, it is likely to be handled differently.

England & Wales

Her Majesty's Court and Tribunal Service (HMCTS) is making use of phone and video hearings. If a particular hearing can't be carried out in this way and it's urgent, it'll be held in a priority court and tribunal building (i.e. one that's not been closed due to the pandemic).

You can still find the relevant court in relation to your hearing here.

HMCTS published and will continue to update additional guidance for all court and tribunal users during the pandemic. There are also weekly operational updates.

Scotland

For the situation in Scotland, see the Scottish Courts and Tribunals website.

Northern Ireland

For the situation in Northern Ireland see Judiciary NI.