It cannot be argued that, as a result of Covid-19, life today is unrecognisable from the one we were living only a few months ago. As individuals we have seen unprecedented restrictions on our civil liberties and in business the landscape has changed dramatically, some say forever. So what will be “the New Normal’ and what options are there for the recovery of businesses affected by lock down?
Speaking yesterday, Prime Minister Boris Johnson announced a return to work for those in construction, manufacturing and any other job that cannot be done from home; a positive move for the economy but not without challenges. Measures to ensure social distancing must be taken and actively enforced with workstations, social areas and rest rooms all needing to be compliant. Directors who ignore this may find themselves subject to personal and potentially criminal liability and with a vaccine still many months away, these measures are likely to become second nature and normal.
But where else may the problems lie?
The Coronavirus Act 2020 protects commercial tenants from eviction for non-payment of rent until 30 June at the earliest and whilst this may be updated it does not mean that rent does not continue to accrue and existing arrears remain due. Landlords will no doubt be supportive where they can but as a commercial entity they will want to be paid and have a range of options in the event of non-payment. It is important to maintain dialogue with your landlord who will be more likely to work with those tenants who engage. If a rent deposit has been made, this may help to deal with any arrears and potentially an extension of the existing lease, providing a longer income stream for the landlord may help viable business to deal with the problem.
Similarly, those businesses who have chosen to defer payment of taxes may experience significant problems as lockdown is eased and HMRC begin to require payment. Time to Pay arrangements can be a good way of formalising a repayment plan with HMRC and as always, the key is to maintain dialogue and often a professional advisor is best placed to deal with any negotiations.
So as we move slowly towards a greater easing of lockdown, with the hospitality trade facing reduced capacity for the foreseeable future, high street retailers facing difficulties with social distancing whilst ensuring their staff are adequately protected, deferred debts becoming payable and Government support being phased out it is inevitable that many good businesses will experience severe cash flow pressures that will threaten their survival.
Range of support for UK businesses
There is a range of support available for businesses with good trading history and strong order books going forward and for whom relief from immediate cash pressure can mean survival. Company Voluntary Arrangements or CVA’s have been in existence since the Insolvency Act 1986 and whilst traditionally misapplication of this procedure has meant that they have a poor track record for success, as we emerge from the pandemic, this may represent the most appropriate support measure for many good businesses.
A CVA is, in essence, a legally binding deal between a Company and its creditors. If successful it binds all creditors and allows a Company to deal with its debts in a controlled a realistic way. Creditors are engaged in the process and will be entitled to vote to approve, amend or reject the proposed deal. Crucially, directors retain control of their business with an independent Supervisor appointed only to ensure that the terms of the deal are complied with. Typically a CVA will last for 5 years with the Company making regular contributions in settlement of all, or an agreed percentage of its debt. At the successful conclusion of the CVA, the Company is free of all historic debt even if it has not repaid in full under the agreement.
An alternative to CVA is prepack liquidation which is a process where the sale of the business and assets is negotiated prior to the company entering liquidation and works in a similar way to prepack administration.
Often the existing owners of a company are best placed to purchase the business from a liquidator to ensure realisations for the benefit of creditors. The liquidator will rely upon an independent valuation of the business and will complete a sale once appointed. The owners of the new business are then able to continue to trade the new company debt free.
Prepack liquidation is best suited to small to medium sized enterprises (SME’s) as it is a less expensive, and if done correctly still allows the usual protections, whilst also avoiding the cost of a TUPE transfer.
If your company is experiencing financial problems, as a result of the Covid-19, please 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.