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30 March 2020

UK government outlines finance schemes and support for businesses during COVID-19 outbreak

These are uncertain times. The impact on personal lives is huge and unknown. Social distancing is of paramount importance.

For businesses, regular and transparent communication between employers and employees, directors and shareholders, advisors and clients, creditors and debtors, lenders and borrowers and landlords and tenants remain essential.

The UK government has outlined schemes and support for UK businesses. The lending community is moving apace with the implementation of the Coronavirus Business Interruption Loan Scheme (CBIL) which may be accessed now. CBIL is available to UK businesses in most sectors with a turnover of less than £45 million but only where such businesses have a long term viable underlying business – it is not a life saver to those businesses which, but for COVID-19, would be in financial distress in any event. The loans under CBIL are limited to £5 million and will be available to those who have exhausted their lender’s own product base and are at the limit of their available security for lending. These loans are a liability of the company but they are government guarantee backed with a repayment holiday of 12 months’ interest and capital.

As such applications for finance should be made to your incumbent bank first – these may be a combination of overdraft, term loan, cash flow finance or asset finance using traditional bank products. Security over assets will be required. The value of the assets will be an assessment for the lender to make against your accounts (filed and management).

You will need to show the bank that the business is viable and but for cash flow issues caused by COVID-19 the business can and will return to profitability. A detailed cash flow will be essential to your application. This should be modelled on a conservative basis showing all actions taken to avoid cash crunches or worse still, no cash.

Discussions with landlords (in relation to rent and service charge payments) should be taking place in advance of rent payment dates to secure payment holidays (rent free periods), monthly rent payments and service charge reductions. All these agreements should be recorded in writing.

Discussions with debtors and creditors should take place to agree short term payment plans which result in cash flow for all. These plans should be carefully recorded and reviewed.

Taxes have been suspended for some (rates) but not all and VAT has been deferred for three months. Payments for tax due in July 2020 have been postponed to January 2021. All of these help with cash smoothing over the coming months.

Equally discussions with employees should take place quickly. Employers should identify those employees who may be ‘furloughed’ and engage in consultation with them. The Job Retention Scheme will reimburse employers for 80% of the cost of an employee up to £2,500 (gross). Applications for such a grant will be made to HMRC. It is not anticipated that these applications will be able to be made before the end of April. As such, businesses need to consider whether additional steps need to be taken in the interim to reduce the workforce if there is simply not the cash available to pay employees.

For some business these schemes together with rates relief and VAT deferment may not be enough to see them weather this particular storm. Throughout the internal review process directors must remain mindful of their duties and to whom these duties are owed. Those directors must also be careful not to take steps now, in haste, which may be unwound in the future in any event and possibly with additional costs and penalties.

How we can help you

At BDB Pitmans we are here to help. We have a team of dedicated solicitors who are expert advisors to stressed and distressed companies. The tools we use in these situations now also apply to healthy viable business who, due to COVID-19, need to take immediate steps to take control of cash and to take advantage of the government’s schemes to avoid becoming an unviable business for the future.

You can find more information here.

Please do not hesitate to contact us on covid19@bdbpitmans.com.

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