Coronavirus & the impact on businesses

French Duncan


 

This article was first published Thursday 12th March, updated 9am Monday 6th April.  Please check back regularly, or follow us on Twitter or LinkedIn to keep informed of all the changes.  

As the planning for and impact of Coronavirus (Covid-19) continues to evolve on an almost hourly basis one thing is sure; it is already and will continue to impact businesses now and in the weeks and months ahead.

The Budget of 11th March included many initiatives designed to shield businesses in the short-term, but many organisations will still face financial difficulties whether around cash flow, decreased revenue or additional costs.

So we asked our own Restructuring and Debt Recovery team what one piece of advice they would offer businesses looking at an uncertain future – and their response was clear:

If you think your business needs assistance, the sooner you speak to a professional the greater the chance we’ll be able to help.

 

HMRC enforcement activity during this period:

  • HMRC has paused the majority of all insolvency activity for now. That means HMRC will not petition for bankruptcy and winding up orders unless it is deemed to be essential, i.e. fraud, criminal activity.
  • HMRC will continue to deal with new company voluntary arrangement (CVA), administration, individual voluntary arrangement (IVA) and trust deed (TD) proposals to allow those businesses who need financial support, to get access to the appropriate insolvency regime.
  • HMRC will consider fresh CVA, IVA, administration and TD proposals but will continue to exercise discretion on proposals.

 

Changes to 'wrongful trading' provisions:

The Business Secretary announced at the weekend that the wrongful trading provisions will be suspended for 3 months, retrospectively from 1 March 2020.

What is Wrongful Trading?

Wrongful trading is a provision of the Insolvency Act 1986 and considers whether a director or shadow director knew or ought to have known that there was no reasonable prospect of avoiding an insolvency event.  If they didn’t take reasonable steps to minimise the potential loss to the company’s creditors then they could be held personally liable for the company’s debts. 

Why is this being introduced now?

With the COVID-19 outbreak causing huge economic disruption, the Government are understandably using whatever tools are at their disposal to minimise the economic fallout.  For small businesses, The Coronavirus Business Interruption Loan Scheme (CBILS) offers financial support with loans of up to £5m.  The first facilities have been drawn down, and, according to the FT, as at 26 March there are more than 4,000 applications in the pipeline.

No-one knows when life will return to normal, therefore this change protects directors from personal liability should their company eventually fail as a result of the outbreak.

What is the likely effect?

Whilst it’s a welcome move, and shows the Government has anticipated a likely impact in insolvencies as a result of the outbreak, it’s unlikely to have a noticeable impact on failure rates:  Wrongful trading only applies when a company has entered an insolvency process.  What it may do is encourage directors that otherwise might be reluctant to “take a gamble” and take additional funding to save otherwise healthy companies.

There remains other remedies available to Insolvency Practitioners to prevent this becoming a “rogues’ charter”.

I am a member of a LLP how does this apply to me?

The equivalent provisions for LLPs allow for members’ profit share and salary for a two year period prior to the winding up to be recouped if the member ought to have reasonable grounds for believing the LLP to be insolvent.  It is not yet clear whether these provisions will also be suspended.

I am a director of a company, what should I do?

Firstly, visit our dedicated website to understand all the help available for business owners.  As part of the proposed changes, the Government is also proposing a moratorium to allow directors a breathing space to consider their options, away from creditor pressure.  In the meantime, it’s recommended that they discuss matters with one of our experts at the earliest opportunity.

 

 

Contact us:

Our Restructuring team are available to speak to any business owners, whether existing clients of French Duncan or not.  They can assist you with cash flow issues, managing debtors or creditors and even discuss your options for lending solutions to see you through difficult periods.

More information and contact details for members of the team can be found on our Business Restructuring page, or you can call and speak directly to:

Whilst some of our staff are currently working from home, all of the above can be contacted on their email addresses or on 0141 221 2984.

They are there to help if you need it.

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Other COVID-19 Information:

For all our help, support and information around COVID-19 / Coronavirus visit www.frenchduncan.co.uk/covid-19.

Here you can link to articles covering deferral of HMRC payments, new business rates & taxbusiness loans available (what we know so far, who will be eligible and how they might work), a 10 Step Guide to the Job Retention Scheme (plus a guide specific to holiday allowances within that) and even Top Tips on how to keep your personal finances healthy during this time.

We’ll keep these updated as things change, so remember to check back regularly.  And we’ll be getting more written on other topics as soon as we can.

It’s just our way of trying to help.

French Duncan. #thepeopleforyou

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