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We are all now well aware of the funding packages introduced by the Government to assist businesses during the Coronavirus crisis.

Over the weekend they have added some practical measures to help businesses continue including:

  1. Suspending Wrongful trading
  2. New restructuring plan and moratorium

What are the proposed changes?

The main one is the suspension of the “wrongful trading” liability for company directors. This provision basically imposed personal liability on company directors where the company went into insolvent liquidation and the directors knew or ought to have known that it was not avoidable.

In those circumstances the directors could be made to contribute to the assets of the company in order to pay its debts. That risk has now been removed for the next 3 months. This is a major step and facilitates company directors continuing to trade their companies even if they know insolvent liquidation is not avoidable.

The new restructuring plan and moratorium is completely lacking in detail and the only comments connected with this were some sort of scheme to allow businesses to function and receive basis utilities etc. whilst protected from creditors with a view to saving the business. Not a great deal can be added at this stage without clarification from the Government on what measures are to be included with this provision.

What is the rationale behind this?

This aims to enable companies to trade through and make use of the various funding packages to help the company survive until trading conditions improve. It removes the worry of directors who may cease trading if they thought they would have to personally fund losses.

There will also need to be some pragmatism when the temporary suspension ends in terms of allowing directors a degree of breathing space to determine whether they should continue trading or not. It would be unreasonable to simply apply liability to directors on the day the suspension was lifted if they have continued trading reliant on the suspension of the provision. This is a major step and clearly shows the lengths the Government are going to to try and ensure companies survive this crisis. The flip side is of course the loss of protection to others trading with such companies

There is a balancing act to be performed here but presently it is a case erring on the side of maximising the survival of businesses.

The Government have recently announced guidance on the self employed payments. However, provisions have not been made for the 5%  of self employed who have generated over £50,000.00 per annum  – we await further guidance to support these individuals.

What measures can I take to cut costs and safeguard cashflow?

It is prudent for businesses to look at the types of things that can be done to maximise cash flow at this time as things are going to get worse before they get better. These measures can be prioritised into 3 groups,

1. Immediate options: Those that are a no-brainer and can be done immediately with no real consequence e.g. ceasing unnecessary supplies and services, furloughing employees, seeking payments on account for work;

2. Possible options: Measures that you can take but which may not be ideal and may have a negative impact on goodwill e.g. pay cut;

3. Last resort:  Measures that are a last resort and ones that will have a significant negative impact on the business in the future e.g. redundancies, closing operations.

Additional UK Measures

  • a three-month extension period for filing accounts, announced on 25 March 2020 — while companies will still have to apply for the three-month extension to be granted, those citing issues around COVID-19 will be automatically and immediately granted an extension. More than 10,000 businesses have already successfully applied for the extension;
  • the Covid Corporate Financing Facility, a new lending facility from the Bank of England to help support liquidity among larger firms, provided they had a short or long-term rating of investment grade (or equivalent) as at 1 March 2020;
  • the Coronavirus Business Interruption Loan Scheme, offering loans of up to £5 million for SMEs through the British Business Bank;
  • a Coronavirus job retention scheme;
  • a 12-month business rates holiday for all retail, hospitality, leisure and nursery businesses in England;
  • the option to defer the July Income Tax payment to January 2021;
  • the option to defer VAT payments due between 20 March and 30 June 2020, until 31 March 2021; and
  • the HMRC Time To Pay Scheme.

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