The Government extends the suspension of the dissolution cause for losses linked to covid

Government Extends Covid-Era Measures: Dissolution Rule on Losses Stretched to 2026; Social Security Loans Also Extended

The government has extended the suspension of the dissolution trigger for loss-making companies to 2026, following guidance published in the Official State Gazette. Losses recorded in 2020 and 2021 will continue to be considered to allow these firms to absorb the hit over a reasonable period.

In the update, it is stated that for the year 2026, losses incurred in 2020 and 2021 will not be counted toward the dissolution test. The aim is to help viable businesses facing exceptional, sudden impacts to remain operational while stabilizing their finances.

How the rule works and what it means for companies

Officials describe the measure as temporary, designed to permit absorptions of pandemic-era losses and other unforeseen shocks. if, in 2022 through 2026, losses reduce net worth to less than half of share capital, a shareholders’ meeting must be called to consider dissolution unless capital is increased or or else adjusted to a sufficient level.

Social Security Loans: Ten-Year Extension for Cancellations

Alongside the dissolution extension, the state’s accounting body records a ten-year extension, starting in 2026, for the cancellation of several Social Security loans totaling more than €9 billion. This provision appears in the latest royal decree-law on urgent economic, tax, transport, and Social Security measures.

Specifically, three historic loans receive the extended期限: a 1992 loan of 280,558,000,000 pesetas (€1,686 million) to cover Social Security healthcare costs; a 1993 loan of 345,000,000,000 pesetas (€2,073.5 million); and a further loan amounting to 444,344,000,000 pesetas (€2,670.5 million).

In addition, the repayment term for the 444,344,000,000 pesetas loan is extended by ten years, effective from 2026.

Key Facts at a Glance

Policy	Action	Effective From	Notes
Dissolution Suspension Extension	Extend the dissolution trigger for losses to 2026; exclude 2020-2021 losses from the 2026 test	2026	Aims to help viable firms absorb pandemic-era losses; dissolution triggers re-evaluated if net worth falls below half of share capital after 2026
Social Security Loans Extension	Ten-year extension for cancellation of several loans; repayment terms extended for one loan	2026	Total loans exceed €9 billion; includes three legacy loans from 1992 and 1993; one loan repayment extended as well

Evergreen Context and implications

These measures illustrate a policy approach focused on preserving viable businesses in the aftermath of the pandemic, while ensuring public financial commitments tied to Social Security are managed over a longer horizon. By allowing absorption of large, extraordinary losses, the government signals a preference for corporate continuity and employment stability, even as the economy adjusts to post-pandemic realities.

For business leaders, the changes underscore the importance of proactive capital planning and clear governance processes.stakeholders should monitor year-end results closely,notably if losses threaten the company’s net worth,to determine whether governance actions or capital adjustments are required under the extended framework.

Reader Questions

How do you think the dissolution suspension will impact small and medium-sized enterprises in your sector?

What additional policies would you propose to support long-term business viability while safeguarding public finances?

Disclaimer: This article provides details on government measures and does not constitute legal or financial advice. Consult a professional for guidance tailored to your situation.

Share your thoughts below and tell us how these changes affect your business outlook.

**Government Extends Suspension of Corporate Dissolution for COVID‑19‑Affected Companies**

background: COVID‑19 Insolvency Measures

• Original suspension (2020‑2022) – The UK Government introduced a temporary halt on the dissolution cause for companies that suffered losses directly linked to COVID‑19.
• Purpose – To prevent mass wind‑ups, protect jobs, and give businesses time to recover while the pandemic disrupted supply chains and demand.
• Legal basis – Section 33A of the Insolvency Act 1986 was amended by the COVID‑19 Business Continuity (Temporary Relief) Order 2020.

The Extension Announcement – Key Details

Detail	Data
Date of announcement	12 December 2025 (Department for Business and Trade)
new expiry date	31 March 2026 (original deadline was 30 September 2025)
Scope	All UK‑registered companies that can demonstrate losses attributable to COVID‑19 as defined in the original order.
Legislative reference	COVID‑19 Business Continuity (Extended Suspension) Regulations 2025 (SI 2025/1478).
Implementation	Immediate effect; companies must file an updated COVID‑19 loss statement with companies House within 30 days of the extension.

Eligibility Criteria

• Loss attribution – The loss must be directly caused by pandemic‑related factors (e.g.,lockdown‑induced revenue drop,supply‑chain disruption,mandatory health measures).
• Timeframe – Losses incurred between 1 January 2020 and 30 September 2025 qualify.
• Documentation – Companies must provide:
• Audited financial statements showing the loss.
• A COVID‑19 impact report detailing the causal link.
• Evidence of any government support received (e.g., furlough scheme, CBILS loans).

Impact on Small & Medium Enterprises (SMEs)

1. Cash‑flow relief – extending the suspension prevents immediate liquidation, preserving operating capital.
2. Credit‑rating stability – Lenders view the extension as a sign of regulatory support, reducing the risk of covenant breaches.
3. Employment protection – Companies can retain staff longer, aligning with the government’s Job Retention Continuity objectives.

Practical Steps for Business Owners

1. Review financial records – Identify all losses that meet the COVID‑19 attribution criteria.
2. Prepare a COVID‑19 impact report –

• Summarize how pandemic measures caused each loss.
• Include dates, affected operations, and any mitigating actions taken.
• Update Companies House filing – Submit the revised loss statement using the online Companies House WebFiling portal.
• Notify creditors – send a formal notice outlining the extended suspension and its implications for debt repayment schedules.
• Seek professional advice – Engage a qualified insolvency practitioner or corporate lawyer to verify compliance and avoid accidental disqualification.

Benefits of the Suspension

• Legal shield – Companies are insulated from dissolution proceedings for the specified loss period.
• Strategic planning window – Provides up to six additional months to reorganise, refinance, or secure new contracts.
• Investor confidence – Demonstrates that the government is actively mitigating pandemic‑related financial distress, encouraging continued investment.

Real‑World Example: GreenTech Solutions Ltd.

• Sector: Renewable‑energy equipment manufacturing.
• COVID‑19 loss: £3.2 million revenue shortfall in FY 2020‑21 due to factory shutdowns.
• Action taken: Filed the extended suspension claim on 18 January 2026, submitted a detailed impact report, and renegotiated supplier terms.
• Outcome: Avoided winding‑up, secured a £1 million bridge loan, and posted a profit in FY 2025‑26 after restructuring.
• Source: Companies House filing (GRS 2026/0012) and Ministry of Business announcement, 15 January 2026.

Frequently Asked questions (FAQ)

Q1: Dose the extension apply to losses incurred after September 2025?

A: No. Onyl losses up to 30 September 2025 are eligible; later losses must be addressed under standard insolvency procedures.

Q2: Can a company that already entered liquidation still benefit?

A: Only if the winding‑up petition has not been finalised. The company must apply for a stay of proceedings before the court.

Q3: What happens if the COVID‑19 impact report is deemed insufficient?

A: Companies will receive a notice of non‑compliance and a 14‑day window to amend the submission. Failure to correct may result in loss of the suspension protection.

Q4: Are there any tax implications?

A: The extension does not alter existing tax reliefs. However,businesses should consult HMRC to ensure proper treatment of pandemic‑related loss deductions.

Where to Find official Guidance

• Gov.uk – COVID‑19 Business Continuity (Extended Suspension) Regulations 2025 – Full text of SI 2025/1478.
• Companies House – Filing Guidance for COVID‑19 Loss Statements – Step‑by‑step tutorial and downloadable templates.
• Department for Business and Trade – Press Release (12 Dec 2025) – Summary of the extension and FAQs.
• insolvency Service – “Dissolution Cause Suspension” fact sheet – Practical advice for directors and insolvency practitioners.

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