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COVID-19: Business debt hibernation and creditors

Business debt hibernation helped companies and other entities affected by COVID-19 to manage their existing debts until they could start trading normally again. Find out what it meant for creditors if a business owing money entered business debt hibernation.

Business debt hibernation has now ended for all businesses

Business debt hibernation has now ended for all businesses

A business that owes you money could have entered business debt hibernation

You may have had dealings with a business that previously entered into business debt hibernation or perhaps you’ve heard about the initiative but you’re not sure how it might affect you. If you’ve already read the overview page about business debt hibernation, here’s a bit more about what it means for you as a creditor.

Business debt hibernation

Now that business debt hibernation has ended, all regular options for recovering and managing debt are available for businesses.

Helps you as well as the business

Business debt hibernation aimed to help businesses keep operating. If a business was struggling with debt and had exhausted options such as loans, business debt hibernation could have been your best chance to receive in full what you were owed. The alternatives for a struggling business include seeking a creditor compromise, or closing their business down and selling off assets (liquidation) to pay creditors. Both cases were likely to see you receive only part of what they owed you. And liquidation can be lengthy and you lose any chance of further sales to that business.

What businesses could and couldn’t do to a creditor

Businesses that went into debt hibernation got some relief from the burden of their debts. But they also had a set of legal obligations, some designed to protect you as a creditor. Here’s what they could and couldn’t do.

Businesses could:

Businesses couldn't:

  • enter business debt hibernation without your agreement (a business only needed the agreement of more than half of its creditors by number and value)

  • delay paying some or all existing debts

  • gain up to seven months of protection from enforcement of debts.

  • enter business debt hibernation without the agreement of more than half of creditors by number and value
  • delay or avoid paying new debts taken on after entering business debt hibernation
  • write off any part of existing debts
  • avoid debts for more than seven months
  • intentionally delay closing down if inevitable
  • get protection from enforcement of certain debts, eg employment-related debts or debts owed to a secured creditor with a general security agreement.

What you could and couldn’t do if you are a creditor

As a creditor, you have to respect the process and the outcome if a client went into business debt hibernation. Here’s what you could and couldn’t do.

Creditors could:

Creditors couldn't:

  • have your say on the proposed arrangement from the struggling business, in a vote alongside other creditors
  • impose different terms for future dealings with the struggling business
  • take five working days to consider your vote, or more if the voting date allows.
  • have your say after the voting deadline
  • fail to comply with an arrangement approved in a vote
  • force the return of goods paid for with debts covered by the arrangement.

How to know if a business had been in debt hibernation

If you’re a creditor, a struggling business must have told you as soon as they start the business debt hibernation process, by sending you a copy of their Entry Notice.

You can check the relevant register to confirm the business’ current registration status and to see copies of any business debt hibernation notices.

All registers(external link) — Companies Office

If a business was in business debt hibernation, their protection excluded any new debts they took on after entering business debt hibernation.

What to expect out of the process

When a business that owes you money entered business debt hibernation, they must have sent you a copy of their Entry Notice. This gave them one month of protection while they set up an arrangement. They also had to send you other info, including at least a high-level description of their proposed arrangement.

This was a good time to chat with the business and find out a bit more about the situation they were facing. It was up to them to make the case that business debt hibernation was the best option for you and their other creditors.

The business must have then followed up with a more concrete proposal, including a resolution for its creditors to vote on. For example, they could have offered to pay a percentage of each existing debt during business debt hibernation, with the remainder due by a later date they set.

You got to vote on the proposal. Businesses must have given you the information you needed to make a good decision, and at least five working days’ notice of the vote. They may have organised a creditor meeting, but they didn’t have to. They must have relayed the outcome of the vote to you . If more than half of the creditors by number and value approved their proposal, the business got another six months of protection, against all creditors, not just those who voted yes.

Business debt hibernation ended automatically at the end of the protection period. This would be no later than 1 June 2022. You wouldn’t have received any notices at the end of the six months of protection. Business debt hibernation also ended automatically if the business entered a creditor compromise, voluntary administration, receivership, or liquidation. Businesses could end their business debt hibernation early. If this happened, you would have received a copy of the Cancellation Notice.

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