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Richard Thomas and Phil Whitehurst

Tiny Steps

The Prime Minister’s much-anticipated speech last Sunday night did not really live up to the billing the press had irresponsibly given it; and quite rightly so, we remain in the firm grip of a killer disease. For business there was nothing of substance.  However subsequent announcements have at least given us some idea of the path ahead even if it looks like a bumpy one and the route far from clear.

So, a week down the line what do we know?

Returning To Work

We are all still struggling to understand what the actual difference is between “if you can, then you should work from home” and the new “if you can’t work from home you should go to work”!

For the time being at least it seems that employers cannot yet compel their employees to come back to the workplace if the employee can demonstrate that they can work from home and the legal consensus seems to be that the government advice to work from home effectively overrides the content of employment contracts that say otherwise.

Similarly, Boris Johnson was clear on Monday that if schools are not open and furloughed workers cannot get childcare, then employers should not expect staff to return. He called it an “obvious barrier to their ability to get back to work”.

While this is not necessarily legal protection if you refuse to go to work, Mr Johnson said parents and guardians who are prevented from returning “must be defended and protected on that basis”.

So, the guidance would seem to be that employers cannot force a return if there is no provision for children.

It is likely that childcare issues will continue for a few more weeks at least. Primary schools are not expected to start re-opening fully until next month. And Monday’s return-to-work government documents warned it may be necessary for childcare providers to introduce a temporary cap on numbers to ensure that safety is prioritised.

However, this must at some time change and a number of issues will then arise such as whether people in vulnerable groups can be required to go back into the workplace even in if they are not displaying any symptoms.

Office based employers have largely been able to manage with a workforce working effectively from home, but in many other cases of remote working this is simply not the case and the example of teachers going back to work with schools scheduled to reopen is an early and pertinent example of this.

For employers there are also the issues of understanding their obligations to create a “safe”, in itself a relative term, working environment and the extent of their legal obligations in relation to this.

For further advice in this area contact Tom Evans or Elizabeth Judson in our employment team

Furlough Scheme

The furlough scheme has, justifiably in our view, been heralded as a major success in the attempt to keep businesses viable and employees employed during the lockdown.  As such it has very much been the lynchpin of the suite of measures and the one that has touched more businesses than any other measure.

It is perhaps the key development for business and employees alike that this has now been extended (in some shape or form) until October and in particular:

  • furloughed workers across UK will continue to receive 80% of their current salary, up to £2,500
  • new flexibility will be introduced from August to get employees back to work and boost economy

In addition, the government has outlined that furloughed workers would be able to return on a part time basis, as opposed to the initial position where a furloughed employee could do no wok whatsoever, from August.

For this extended post August scheme and “part time furloughing” employers are to be asked to make a contribution to the 80% of salary government payment.  How this is to work and crucially the impact on employers is still to be clarified, so “watch this space”.  With an estimated 7.5 million workers currently furloughed the significance of this for both government and employers is massive. Further details have been promised at the end of this month

Business Funding

We have previously summarised the support packages that the Government has put in place for UK businesses  The latest of these has been the Bounce Back loan scheme targeted at the smallest businesses announced by the Chancellor on 27th April as a response to the criticism that this sector that is so key to our economy had been overlooked, the scheme is to provide loans of up to £50k via accredited lenders (namely banks and other institutions just as with CBILS) which are interest free for 12 months.

The application process is designed to be simple involving merely a two-page form – one of the criticisms of CBILS being that the application process was altogether too involved and cumbersome – with the government guaranteeing 100% of the loan.

As with the other schemes it’s important for businesses to realise that this guarantee is to the lender and not them. They remain fully liable for their debt but the fact that it is now a 100% guarantee not merely 80% is designed to make it easier for lenders to say “yes”.

The Economy

There were suggestions in the Prime Minister’s announcements that there may be changes for the worst affected businesses coming in the next couple of months, but nothing more.

Meanwhile there are daily reports of unprecedented economic shrinkage and recession.  There can be little doubt that the economy is going to continue to suffer for some time. What this means for businesses is very difficult to tell.  For some there may be the “V” Shaped recovery, for others “U”shaped or unfortunately for some there seems no getting away from a bleak outlook.  It seems to us that this is likely to be very sector specific.

However, as well as taking account of the immediate issues and difficulties faced, all businesses should have one eye on the exit from lockdown when they consider the steps they take now and what support packages they take advantage of.

No one knows how the Government will reverse the various financial measures they have effected or the anticipated enforcement and insolvency process suspensions they have enacted/intend to enact. Some may say the Government doesn’t know either! The fact is though that we will have to exit these various provisions and procedures at some point.

So How Can Businesses Best Plan For That?

It is a very difficult question to answer since we are very much in the dark as to how the situation will develop. The only sound advice is to be prudent with the support packages you take on and not to simply take them on without considering the long-term impact. Furloughing, though, is something of a no-brainer since it is effectively free money. However, thought still needs to be given to how those staff who have been furloughed may be brought back into the business or possibly not brought back. Even if the lockdown was to end instantly one day, business will not return to February 2020 levels instantly. Some forecasts suggest business will take until summer next year before it returns to those levels. Quite how anyone can make such a prediction when we have no idea when the lockdown will end or how it will end is beyond us!

Businesses should though all have in place a cash flow forecast of some description and possibly several variants of it. Not as some way of predicting what levels of business there will be, since no one can possibly know that, but to see what effect different levels of business will have on your organisation and to identify all possible measures that can be taken to lessen the impact of such effects. If taking out a CBIL or Business Bounce Back Loan, then these will obviously need to be factored in. Whilst VAT and Self-Assessment Income Tax can currently be deferred; they cannot be left out of these forecasts completely. If provision is not made for these payments, if you do defer them, where will the money come from to pay them when they are due?

Directors’ Responsibilities

The Government has proposed that the obligations on directors to avoid wrongful trading be lifted during this time. This is where directors knew or ought to have concluded that insolvent liquidation was not going to be avoidable and at that point, they should take all steps to minimise losses to creditors, which in practice can only really be satisfied by ceasing to trade.

However, directors still have their statutory duties to uphold which can be summarised as the duty to act in the best interests of the company. Unless some allowance is made for the current crisis in assessing this duty then simply lifting the wrongful trading obligation may be meaningless if the company ultimately goes into insolvent liquidation. Is taking out a hefty loan when you have no way of knowing if it can be repaid in the best interests of the company? Only judges in the future will be able to determine this. It would therefore be best to document all such decisions with the contemporaneous reasons for doing so clearly set out and with the consequences of not doing so also clearly set out.

If rent cannot be paid now, then the landlord is prevented from taking any steps to evict the tenant or wind them up (although this is yet to be enacted) but landlords are businesses just as much as tenants and they need their rents paying. What plans can tenant businesses put in place to ensure they can pay rent when the restrictions on landlords are lifted and how will the arrears be dealt with? Savvy tenants will be engaging with their landlords as much as possible to do their best to keep them onside in anticipation of the day when the restrictions are lifted and landlords who have not been paid for many months can take steps to recover.

It may be appropriate for some businesses to look at a complete restructure in order to cope with the impact of the crisis and to assist in achieving recovery. This will obviously require careful thought and consideration as to what is best for the business and how it should be structured to meet the challenges. For some businesses there may be opportunities to sell as there are always entrepreneurs looking to leverage an opportunity in a crisis. Again, putting a business into the right structure to maximise such opportunities may be crucial and this is something else that should be added into business owners’ thought processes when looking at how to deal with the crisis.

These are extremely worrying times and there are no easy answers out there and the best that can be done is to try and put your business in the best position it can be to weather the storm and whilst it is absolutely right that every day which passes in lockdown is a day closer to returning to normality it is also another day of poor performance for some businesses and businesses cannot live in hope and action must be taken at the earliest possible time to ensure the business is still going when we do get to that inevitable recovery.

At DTM Legal we have a range of specialists who will be able to help discuss these issues with you and identify opportunities for you to maximise your business’ survival.


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