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COVID-19, also known as Coronavirus, affects almost every aspect of both our business and personal lives. Our superb team of company and restructuring lawyers can help you find a way through any issues

The current position that we find ourselves in appears to have come out of nowhere and quickly had a significant impact. Not only are business owners having to cope with their own personal family issues during this crisis, but there is an immediate impact on the economy, not just in the UK, but the world. The knock-on effect is that all businesses in the UK are having to deal with the fall out.

What resources are available for business support under COVID-19?

Following the announcement of lockdown in March 2020, the government introduced several initiatives providing temporary financial support for businesses. It is of some comfort to see that the government are ploughing an enormous amount of money into the economy in an attempt to avoid a full economic meltdown. For more details read more about this – How is the Government supporting businesses?

These initiatives include:-

COVID Corporate Financing Facility (CCFF)

In conjunction with the Bank of England, this is a scheme to provide fast and cost-effective working capital for larger firms in the UK to assist cashflow temporarily during this period.

Coronavirus Business Interruption Loan Scheme (CBILS)

This is a scheme predominantly for the small and medium enterprise market which gives temporary access to a range of different loans and other financing options, such as asset finance facilities, with the guarantee and backing of the government owned British Business Bank.

Employees and furlough

An initiative bought in by the government to support companies by paying up to 80% of employees’ wages while they are unable to work due to the circumstances of the company and the lockdown provisions imposed on businesses. The is to avoid companies who, unable to pay their staff due to temporary cashflow issues, would otherwise have to make those staff redundant.

Changes to insolvency legislation

In response to the COVID-19 crisis the government has announced some temporary changes to insolvency legislation, and some proposed more permanent changes to legislation. None of these have been gone through Parliament yet, but certain terms are very likely to be implemented, such as those around the temporary hold on wrongful trading penalties.

Changes in effect already

The Coronavirus Act 2020 already prevents a landlord from forfeiting on a lease for rent arrears.. This will be of assistance to companies that are experiencing problems meeting rent following cashflow issues as a result of the Coronavirus.

The courts are operating under new protocols and procedures under a new Temporary Insolvency Practice Direction (TIPD) which was introduced with effect from 6 April 2020 and (currently) expires on 1 October 2020. This provides for the usual rules on filing and serving documents, and attending court to be amended to accommodate the lockdown. For more information see: COVID-19 and the operation of courts: What it means for you and Debts and Coronavirus: how best to pursue payment of outstanding debts.

Wrongful trading

Standard wrongful trading penalties are temporarily suspended for any action that directors take between 1 March 2020 for a three month period, which may be increased if necessary in due course. This can take the pressure off a director from the worry of personal liability if they incur credit during this period and they are not 100% sure of the company’s situation in due course and the ability to meet this debt. However, directors should be cautious when relying on this.

Proposed changes to insolvency legislation

The government have put forward some proposals for changes to insolvency legislation as a result of the COVID-19 crisis, but note that these are not yet set in legislation and are only proposals for the time being. These include:-

  • A moratorium period for distressed businesses to consider a rescue plan during which they will be protected from recovery action by creditors.
  • The introduction of a new restructuring framework which will be able to bind all creditors to a reorganisation plan.
  • A prohibition on termination clauses in supply contracts being invoked by reason of a company entering into a relevant insolvency procedure, in order to ensure that businesses entering insolvency can continue to access essential supplies to keep operating.
  • Winding up petitions cannot be presented if based on statutory demands dated 1 March 2020 to 30 June 2020. Creditors will also be prevented from winding up a company unless the creditor has reasonable grounds to believe that coronavirus has not had a financial effect on the company or that the company would have become insolvent in any event, coronavirus’ or not (which will be difficult to prove). Winding up will now commence from the date of the order, meaning that transactions entered into between the petition and the order will no longer be void unless validated by the court.

Risk to directors

There is no doubt that by anyone’s estimation the current climate is extremely difficult for individuals and businesses while everyone is using their best efforts to take control of the situation and ensure business survival post Coronavirus lockdown and beyond.

This is a particularly difficult time for directors who are having to deal with new ways of working, cashflow issues, both market and physical restrictions, and dealing with worried staff. However, during this time, directors must be extra vigilant about their own position, and that of creditors.

At Francis Wilks & Jones we have years of experience advising directors and business owners on methods of dealing with financial problems. For example, using business recovery tools, debt recovery options, or looking at formal or informal insolvency options, amongst others. Our team of expert lawyers also advise directors on their own personal liabilities, including defending claims against them for personal liability and defence of company director disqualification proceedings. In short, there is no problem that a director has faced that we have not yet seen.

The most common areas for you to be concerned with are likely to be the following:

  • covid corporate financing facility;
  • coronavirus business interruption loan scheme;
  • employees and furlough;
  • changes to insolvency legislation;
  • future risks to directors.

At Francis Wilks & Jones you will always speak to someone at a senior level who will respond to any query you have immediately. Call us for a consultation today.

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