Below are some pointers as to how to help keep your business alive during the COVID-19 epidemic, along with an Appendix entitled ‘Coronavirus Checklist.’ There is a lot of information here, so use it as a ‘pick and mix.’
The 2008 crisis was a financial one. COVID-19 started as a medical and human emergency but has progressed into a financial crisis. The UK’s Chamber of Commerce (where, until recently I was chairman of the West & North Yorkshire Region) has indicated that 60 percent of private businesses only have enough cash for three months. As a result, businesses need to go into survival mode.
So, here are some thoughts to help keep your business alive:
For smaller businesses
· Improvements have been made today, to the Coronavirus Business Interruption Loan Scheme (‘CBILS’) which was originally introduced on 23 March, owing to a take up of only £145m out of potentially £330bn having been made available by the Chancellor. The details are:
Up to £5 million in value; interest-free for the first twelve months; and guaranteed by the UK Government for up to 80% of the loan value.
Banks have now been prohibited from requiring personal guaranteed for loans under £250,000 and applications will not be refused from businesses that have previously been refused a loan for commercial reasons. However, the government has not capped the interest rates banks can charge.
· Businesses with under 250 employees will be eligible for a refund of up to two weeks' statutory sick pay per employee who is eligible for SSP due to COVID-19.
· Grant Funding of £10,000 for all businesses in receipt of business rate relief or rural rate relief, and £25,000 for retail, hospitality and leisure businesses with property with a rateable value of between £15,000 and £51,000.
· Certain businesses will be eligible for a Business Rates holiday.
For larger businesses
· The government has also provided a new COVID-19 Corporate Financing Facility meaning that the Bank of England will buy short term debt from companies as a way to support companies affected by short-term funding issues.
· Businesses with sales of up to £500m are eligible for state-backed loans of up to £25m.
For businesses generally
· A Coronavirus Job Retention Scheme will be introduced, designed to prevent employers from making its employees redundant who are unable to work due to coronavirus. It offers all employers access to a grant covering up to 80% of the wages of such employees. The grants will be:
· Capped at £2,500 per month;
· Available initially for three months; and
· Backdated to 1 March 2020 and available from next month.
· VAT payments will be deferred until the end of June for all businesses.
· Income tax payments on accounts due under Self-Assessment on 31 July 2020 will be deferred until 31 January 2021.
Here are some of the ways in which we can help:
General business advice
It is useful to have someone you can rely on; someone who has experienced major disruptions to the economy beforehand, and who can see his way through problems like these. Also, having someone keeping an eye on the news and daily announcements from the government is very reassuring.
How to communicate with your Employees
Many businesses will need to put a ‘phased return to work’ in place for their employees when the virus finally comes to an end. Don’t be afraid that you might be risking claims from employees alleging constructive dismissal if you need to alter employment terms. Exceptional times call for exceptional measures. Employees are not stupid; they know there is a crisis and you will find that they will usually be amendable to their employment contracts changing. You may, for instance, need to negotiate substantial amendments to employees’ contracts; pay lower wages; instruct employees to work a shorter week; and ask them to take unpaid leave. You may also need to implement some redundancies.
You should warn employees now of the possibility of future employment changes and explain why they might need to be made. This will prevent employees being surprised when they happen. It also gives employees time to prepare financially.
Time to Pay arrangements and HMRC negotiation support
It was announced at the recent budget that the existing Time to Pay (TTP) scheme would be extended. This means more businesses will be given additional time to settle their HMRC obligations. A TTP arrangement is a payment plan with HMRC that allows outstanding tax to be paid off in the future, through a series of installments. Successful negotiation is key. You may feel more comfortable enlisting the assistance of a third party to enter into these discussions on your behalf, giving you one less thing to worry about.
Raising additional finance
Many businesses will be in need of an injection of funds over the coming months, as previously guaranteed income dries up. There are a variety of additional finance options, including invoice factoring and discounting, traditional bank loans and asset finance, as well as more niche lending alternatives.
Funding via the Coronavirus Business Interruption Loan Scheme
The Coronavirus Business Interruption Loan Scheme (CBILS) will temporarily replace the existing Enterprise Finance Guarantee Scheme. Its purpose is designed to ease access to business funding. The government will back 80% of the lending facility, meaning the risk to the banks is reduced. This potentially opens up finance to companies who may not ordinarily meet the lending criteria.
I would, however, advise against offering banks any personal guarantees. The government has already criticized banks for demanding these.
Debtor collections
It is understandable that many businesses will be struggling, and it is likely some will, unfortunately, fail. You should brace yourself for bad debts. It may be possible to enter into new agreements with debtors, backed up by personal guarantees. We can help with this.
Personal guarantees and personal liability advice
Business owners could find themselves dealing with their personal debt as business problems spill over into their personal life. Business owners may find themselves dipping into their own funds, in an effort to keep their company afloat. You may also find personal guarantees that you previously provided as security for an existing loan being called in. I have successfully negotiated PG’s away during the 2008 crisis and am dealing with some similar issues now.
Creditor pressure
You may find yourself getting hounded for payment more quickly and more aggressively than before. This crisis is set to affect the vast majority of businesses. The key is to communicate with creditors and to arrange mutually agreeable plans with them. We can provide advice to enable you to negotiate more favorable terms with your creditors.
Company Restructuring/Administration/Company Voluntary Arrangements (‘CVA’s’)
There may come a time when you need to consider undertaking a process of financial restructuring in order to save your business. This may involve a reorganisation of its operating structure, including closing down unprofitable operations, an administration, a CVA, a liquidation of unprofitable subsidiaries, and seeking creditors’ agreement to pay them a proportion of their debt in a full and final settlement, etc. We can help advise on a range of options to restructure while allowing the business to continue trading. Don’t delay.
Dealing with County Court Claims and High Court Writs, Statutory Demands, Winding up Petitions and County Court Judgments
If you are presented with any, either against your company or you personally, it is vital that swift action is taken to address the situation. The longer any such claims remain outstanding, the more the risk to your company. There are ways of challenging such action, but you need to move quickly.
Redundancy advice
We understand you are likely to be concerned about your staff and how this situation may affect them if matters do not improve in the near future. If you don’t want to do it yourself, we can direct you to a specialist redundancy claims company who can offer redundancy advice for both your employees and for you.
R&D tax credits
It is wise to look at all avenues of increasing the money coming into your business when cash flow is tight; one of these ways is seeing if you qualify for R&D tax credits. R&D tax relief is available to a whole host of businesses including both SMEs and large corporations from almost all sectors and industries. We can assess your eligibility for Research and Development (R&D) tax credits, and if your business is entitled then this could be a quick way of getting cashback to your company.
Forthcoming legislation
On Saturday 28 March 2020 the Business Secretary confirmed that the government will be bringing forward legislation for approval in Parliament when it meets after the extended Easter recess which will have the effect of:
· Creating a corporate breathing space on commercial debts and essential supplies (effectively an acceleration of reforms which have been in the pipeline for some years); and
· Suspending wrongful trading laws under the Insolvency Act 1986 (NB – no relaxation on Fraudulent Trading laws).
The above reforms are expected to be backdated to 1 March 2020.
Appendix
Coronavirus Checklist
Below is a list of basic actions you can take to help protect your business during the coronavirus epidemic.
· Update your business plan
· Don’t forget the existence of any personal or other guarantees or loans. Take advantage of the Coronavirus Job Retention Scheme
· Remote working/Early Holidays/Short Time Working/Sick pay/SSP/Travel Policies/Health and Safety Policies/Redundancies
· Liaise and notify Customers, Suppliers, Contractors and Trading Partners
· Time to Pay: Agree to defer VAT/PAYE/NIC/CIS/MGD payments
· Defer Rates Payments
· Claim new Business Rates Reliefs if applicable
· Agree Rent and other Expenditure deferrals
· Prepare updated new or updated Bank Facilities
· Consider Coronavirus Business Interruption Loan Scheme
· Defer Capital Expenditure
· Defer Finance Payments HP/ Leasing - apply for 3-6 month reprieve
· Accelerate Income
· Update Credit Control Procedures
· Reduce Stock Levels
· Review of Insurance Policies
· Review Terms and Conditions, and Contractual Obligations
STOP PRESS
Over the weekend the government announced it will amend insolvency law in an attempt to provide companies breathing space and keep trading (absolving directors of personal liability for wrongfully trading) whilst they explore rescue or restructuring options.
This will include enabling companies to continue buying supplies, such as energy, raw materials, and broad-band whilst they are attempting a rescue and, temporarily, suspending wrongful trading provisions retrospectively from 1 March 2020 for 3 months so that directors can keep distressed businesses operating without the threat of personal liability.
The CBI welcomed the above announcement, recognising that headroom is required for businesses to utilise the government's C-19 related support packages, including the recent measure to grant a three-month extension to the filing of accounts at Companies House.
Under the plans, new restructuring tools will be introduced including:
A moratorium from creditors seeking to enforce debts for a period of time whilst they seek to restructure/rescue (in a similar way to the administration regime);
Protection of supplies to enable trading during the moratorium; and
A new restructuring plan binding upon creditors.
The position of Banks
The success of the Coronavirus Business Interruption Loan Scheme is dependent on Banks releasing the funds quickly. Some banks have been hiding behind the curtain and demanding personal guarantees when they are already receiving government guarantees. They have been rightly criticised for this. This is wrong and I advise business owners NOT to agree to these terms.
Winding Up Petitions adjourned for at least 12 weeks
There is speculation as to whether a temporary moratorium against creditors will be enacted by the UK government. Whilst this has not fully materialised yet, the Companies Court has now adjourned all winding-up petitions for a period of between 12 and 16 weeks. In light of the above, creditors who are in the future contemplating issuing a petition against a debtor should think again.
HMRC preferential status
Some relatively good news for trade creditors and asset-based lenders is that the reintroduction of HMRC's preferential creditor status which was due to come into force from 6 April 2020 (in respect of certain tax liabilities) has now been delayed until 1 December 2020, so currently HMRC still ranks as an unsecured creditor in any liquidation until that time. Preferential creditors are paid in priority to floating charges and unsecured creditors.
Wrongful trading provisions to be suspended for three months
Wrongful trading provisions are triggered when a company director knew, or ought to have concluded, that that there was no reasonable prospect that the company would avoid going into insolvent liquidation. Under Section 214 of the Insolvency Act 1986, a company director can be personally liable to pay compensation in these circumstances. This is a significant risk for any director who has to balance whether a company can continue to trade or enter into a formal insolvency process (such as administration or liquidation).
Whilst the specific legislation has yet to be formalised, the Government has announced that the suspension of the wrongful trading provisions will be retrospective from 1 March 2020, until 1 June 2020. This will apply to all companies in all sectors, regardless of whether COVID-19 has been the cause (or catalyst) of any financial decline.
Conclusion
Don’t be embarrassed that you are in a difficult financial position. Virtually everyone is. Talking to someone experienced, who has seen these sorts of issues before, and has helped many businesses in the past, is often the best way to deal with problems. Remember, a problem shared is a problem halved
So, call or email me at any time. I want to help.
Andrew Lindsay andrew.lindsay@representationuk.com
Chairman www.representationuk.com
Representation UK – Leeds, York, Yorkshire. 07787 525 469