Why Insolvency may not be inevitable following the Coronavirus pandemic

business table

The Government are looking into the possibility of relaxing the Insolvency rules in the UK as a result of the coronavirus pandemic, according to Sky News.

One measure being considered is a 90-day freeze on winding-up petitions in view of cash flow and operational difficulties as a result of coronavirus (Covid-19).  Other measures being considered are the suspension of wrongful trading rules and extending the existing 10 business day moratorium period in administration.

Current international changes

The Australian and German Government’s have already introduced changes and it seems likely that our Government will follow suit.

The Chancellor of the Exchequer also last week set out a package of measures to assist businesses through this period of disruption caused by Covid-19.

This includes a package of measures to support businesses including:

  • Furloughing staff and having their wages paid by the Government’s Coronavirus Jobs Retention Scheme.
  • Deferring VAT for 3 months and Income Tax payments due in July (under self-assessment) deferred until January 2021.
  • Statutory Sick Pay relief for small and medium sized businesses (“SMEs”) – 2 weeks SSP refund per employee effected by Covid-19.
  • A 12-month business rates holiday for retail, hospitality, leisure and nursery businesses in England.
  • Small business grant funding of £10,000 for all business in receipt of small business rate relief or rural rate relief.
  • Grant funding of £25,000 for retail, hospitality and leisure businesses with property with a ratable value between £15,000 and £51,000.
  • The Coronavirus Business Interruption Loan Scheme offering loans of up to £5 million for SMEs through the British Business Bank for businesses with turnover of £45m or less.
  • A new lending facility from the Bank of England to help support liquidity among larger firms, helping them bridge coronavirus disruption to their cash flows through loans.
  • The HMRC Time To Pay Scheme – agreed on a case by case basis with HMRC.

Additional emergency procedures to assist businesses

Whilst the Government may well be considering additional emergency procedures to assist businesses effected by Covid-19 there are inevitable delays with the current measures i.e. the Coronavirus Jobs Retention Scheme is yet to be launched. In the meantime, it is important to continue dialogue with your creditors and stakeholders to enable you to navigate your way through one of the most turbulent times in peacetime economic history.

If your company is experiencing financial problems, as a result of the Covid-19, get in touch to discuss your current situation and the options available. Our skilled and experienced team of Insolvency Practitioners will help you find a solution.

Please call us now on 0330 159 8080 for a FREE initial consultation.

Coronavirus: Your responsibilities as a director if your company becomes insolvent

The world is a challenging place right now. With the Corona (covid-19) pandemic having a significant impact right across the globe, businesses across all sectors are finding themselves in a totally unprecedented scenario.

As we speak, the Government is trying to introduce measures to help save businesses and boost the economy during this turbulent time. Sadly, not all companies will make it through this testing time, in fact, many are already having to make redundancies and even close their doors.

 

But, if the worst does happen, what are your responsibilities as a director if your company becomes insolvent?

If your company becomes insolvent, in other words, you can’t pay your debts, you have certain responsibilities as a director. And it’s important that you meet these responsibilities to avoid any accusations of wrongful or unlawful trading, penalties or director disqualification further down the line.

Most importantly, you need to act responsibly to avoid any personal liability for the company’s debts.

Cease trading

As soon as you realise your company is insolvent, it is your responsibility as a director to stop trading. This means, you must stop sending out orders, issuing invoices, and paying your staff. You also mustn’t apply for any further finance.

Insolvency practitioners have a legal mandate to investigate your behaviour in the lead up to company liquidation. If they find evidence of wrongful trading, you could receive a disqualification order, preventing you from serving as a company director for up to 15 years. Worse still, if fraudulent trading is proven you could face more serious penalties, including fines and even a prison sentence.

Shareholder meetings

The next step is to call a meeting of all shareholders and a virtual meeting of creditors or a deemed consent procedure. If the liquidation of the company is voluntary, shareholders must vote for the company liquidation. At least 75% of shareholders must vote in favour.

Statement of Affairs

As Director, you will be required to prepare a Statement of Affairs in Insolvency. This acts as a handover document for your insolvency practitioner, ensuring they are fully aware of the business’ situation, including a list of employees, creditors, and suppliers, as well as debts.

Appoint an insolvency practitioner

At this point, you are legally required to appoint an insolvency practitioner.

Inform Companies House

Once the liquidation has been confirmed, the liquidator will need to inform Companies House using the official documentation. This will also need to be advertised in the official journal of public record, the Gazette, within 14 days.

Deliver all books, assets, and records to the liquidator

It will be your responsibility to deliver accurate, up-to-date records and books to the liquidator. These can be seized by force if you do not comply.

You may also be asked to attend an interview with the liquidator. If this is the case, you will be legally obliged to attend.

Directors’ Loan Accounts

If the company has an overdrawn director’s loan account, this will be classed as a company asset and will be called in by the liquidator.

Even if the directors’ loan has been written off, the liquidator can reverse the accounting entry to ensure that the directors are held liable.

It’s a worrying time for many businesses. But we’re here to help. If your company is experiencing financial problems as a result of the Corona pandemic, get in touch to discuss your current situation and the options available. Our skilled and experienced team will help you find a solution.

Please call us now on 0330 159 8080 for a FREE initial consultation.

 

Managing creditors if your business income falls due to Covid-19

Covid-19 business implementations

Covid-19 business implementations – debt solutions hub are here to help.

As businesses and communities around the world are dealing with the knock-on effects of Covid-19, many businesses, schools, leisure facilities, and events have already been forced to close their doors in a bid to contain the spread of this worrying virus.

 

And although these are necessary steps to protect the health of us all, especially the most vulnerable, the measures are already having devastating effects, with businesses of all shapes and sizes as they are already struggling to stay afloat.

 

However, there are number of different steps that you can take to manage creditors if your income falls as a result of Covid-19.

 

But first and foremost, what is a creditor?

 

A creditor can be anyone – a supplier, bank or even an individual – that has provided a service or goods to a business, even if an agreement has been made that the loaned goods, funds, or services will be paid back at a later date.

 

It’s absolutely vital that all businesses keep a close eye on their creditors throughout the financial year but especially during concerning times such as the Covid-19 pandemic.

 

Knowing how much you owe out each month and when the payments need to be made will allow you to stay on top of cash flow, and manage wages and overhead payments. It’s vital these payments are made on time to ensure you maintain a good relationship you’re your creditors.

 

How to manage your creditors if your income falls due to Covid-19

 

Although the true extent of the financial implications to business remain unknown at this stage, there is definitely a risk of income dropping. So it’s important to be aware of the ways you can manage your creditors if your income falls as a direct result of Covid-19.

 

Be honest with your financial backers

 

Your financial backers should be your top priority when it comes to managing your creditors. So, if you think that you’re about to get into financial difficulty due to the pandemic, the best thing you can do is be open and honest with your bank, provide regular management accounts, and make sure that you’re aware when payments need to be made. At the same time, you should also inquire what will happen if you are unable to make any payments on time.

Determine how essential your suppliers are

 

If cash flow becomes an issue and you’re struggling to manage your creditors, it’s worthwhile evaluating your suppliers, considering how much you’re paying out per month and whether your business can operate if you were to halt their services.

Identify creditors that are likely to be inflexible

 

Finally, it’s important that businesses are able to pinpoint creditors that are likely to be inflexible. For example, statutory bodies such as HMRC can surcharge you for late payment automatically and local authorities are also in a position to sue any business that does not pay its business rates. Other creditors may be more flexible.

Remember, building a good relationship with your creditors is key to managing cash flow during these uncertain and challenging times.

If you would like to find out further information on some of the services that we offer, why not visit us at our Liquidation page or maybe just learn more about us as a company!