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Covid 19 Rescue Package


Insolvency During Covid

In light of the recent changes to Insolvency Law we look at what steps must be considered for your business if you are suffering from cash-flow difficulties.

Businesses have shown grit and determination to overcome the challenges are result of national and local restrictions. However, in this unprecedented time, this has significantly added financial pressures, which has led business owners to review the options concerning redundancies, restructuring or insolvency.


Key issues are: 


  • Forecasting cash flows

  • Managing cash

  • Managing creditors, and

  • An increase in debt in relation to HMRC, landlords, creditors, and loans.


Recent Government changes to Insolvency law

In June 2020, the Government put in place some temporary and permanent measures made changes to Insolvency law.


Temporary Measures


  • The government has announced that it intends to reinstate the temporary removal of the threat of personal liability for wrongful trading from directors until 30 April 2021.


  • Companies with obligations to hold annual general meetings can continue to have the flexibility to hold these meetings virtually until 31 March 2021.


  • Statutory demands and winding-up petitions will continue to be restricted until 31 March 2021 to protect companies from aggressive creditors as a result of Covid-19 related debts (the measure was due to expire on 31 December 2020 but was extended on 9 December 2020). 


  • Termination clauses are still prohibited, this stops suppliers from ceasing their supply or asking for additional payments while a company is going through a rescue process. However, small suppliers will remain exempted from the obligation to supply until 30 March 2021 so that they can to protect their business if necessary.


  • A company may enter into a moratorium if they have been subject to an insolvency procedure in the previous 12 months. The modifications to the new moratorium procedure, which relax the entry requirements to it, will also be extended until 30 March 2021. Measures will also ease access for companies subject to a winding up petition; also to be extended to 30 March 2021.


 Permanent measures:


  • Introduction of a new “Moratorium” process.


  • Giving companies breathing space from creditors enforcing their debts for a period of time whilst they seek a rescue or restructure.


  • Prohibition on enforcement of termination clauses in supply contracts. This enables companies to continue trading during the moratorium.


  • Introduction of a new “Restructuring Plan” process, binding creditors to that plan.


The moratorium allows a company in financial difficulty a time period during which creditors will be unable to enforce debts, so that it can avoid closing down in order that action can be taken to secure its long-term survival.


A restructuring strategy provides an opportunity for a financially-distressed company to work with creditors to restructure their debts.


Finally, companies are supported through a rescue process by the introduction of new rules to prevent suppliers terminating contracts solely by virtue of a company entering an insolvency process. Further details on the law changes can be found here.


What can you do?

You must continue forecasting cash- flow on a weekly basis. Contact LMS to help guide you through this process.


If forecasts show you can no longer meet liabilities and need further support, contact LMS immediately.




A Restructuring Strategy is an arrangement with a company’s creditors and is an option for companies which are going through financial difficulties or anticipate this in the future. 


A company does not have to be insolvent for a Restructure Strategy. A Restructuring Strategy can be proposed by the company, its shareholders or its creditors.


Insolvency & CVA

Insolvent means that the company is either unlikely or will become unlikely to settle its debts as and when they fall due; or that the company’s debts exceed its assets. If your limited company is insolvent, it can use a Company Voluntary Arrangement (CVA) to pay creditors over a fixed period. If creditors agree, your limited company can continue trading.




A company can get financial assistance from The Insolvency Service from the Government towards the costs of making staff redundant, should a Company be in CVA, however, this must be paid be paid back.


The Redundancy Payments Service will cover employees’ claims as long as the company properly operated payroll for its staff which is either PAYE or the CIS scheme.

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