Allana Sweeney: Positive business measures – a spark of hope for businesses in financial distress

Allana Sweeney: Positive business measures – a spark of hope for businesses in financial distress

Allana Sweeney

Allana Sweeney, senior associate in Shepherd and Wedderburn’s restructuring and business advisory team, discusses how the measures of support implemented to help businesses during the coronavirus pandemic are a spark of hope for firms.

Each day brings fresh challenges as a consequence of the COVID-19 pandemic, giving rise to understandable anxiety among businesses and wider society. However, there have been welcome announcements from the UK Government and Scottish Government in terms of the support it is providing to those facing or bracing for insolvency in order to mitigate financial liabilities.

Details of some of these measures are set out below and we would encourage businesses to identify as many viable options as is possible in early course:

1. Insolvency reforms are anticipated imminently that will undoubtedly provide breathing space and further comfort to businesses affected by the COVID-19 pandemic. In particular, the UK Government has indicated the reforms will:

  • Temporarily suspend wrongful trading for a three month period commencing 1 March 2020
  • Introduce a moratorium for companies to prevent certain enforcement action being taken and assist with rescue and restructuring strategies
  • Introduce a new restructuring plan process
  • Amend the essential supply provisions contained within the Insolvency Act 1986 to ensure continuity of supply.

2. The Bank of England has announced an emergency cut to interest rates, lowering the base rate to 0.1%.

3. Businesses will be able to retain staff for at least a three-month period, during which they will be able to recoup 80% of their employment costs up to a maximum sum of £2,500 per month per employee. This will require the status of employees to be altered to being a furloughed worker.

4. 100% relief from business rates has been announced for the tax year 2020/2021 for various different categories of business including:

  • retail, hospitality and leisure sector businesses with occupied properties; and
  • nurseries (this is new for England – since April 2018, nurseries in Scotland have been entitled to 100% relief); and
  • Scottish airports and relevant handling services at Scottish airports. 

In England, there is no action required because the rates will be applied to the relevant Council Tax bill. In Scotland, we do not expect there to be any change in process for obtaining relief. 

5. In addition to the above, the Scottish Government has announced a 1.6% relief on non-domestic rates for the year 2020/2021, effectively reversing the poundage change for that year. This will be applied automatically to bills going forward.

6. A grant of £10,000 will be available to small businesses that pay little or no business rates in respect of occupied properties, including:

  • England – those who would ordinarily be entitled to Small Business Rate Relief, Rural Rate Relief and Tapered Relief.
  • Scotland – this is a one-off grant for those who would be entitled to Small Business Scheme Relief and Rural Relief. It is also available if a business has applied for Nursery Relief (see point 3 above), Disabled Relief or Business Growth Accelerator Relief where the business would be eligible for the Small Business Scheme Relief. The application can be made from 24 March 2020 and will be available until 31 March 2021. Only one grant application can be made irrespective of the number of properties. 

7. There are also cash grants available in relation to non-domestic rates for businesses in the retail, hospitality and leisure sector with occupied properties. There are some nuances in the Scottish position:

  • England – a grant of up to £25,000 per property is available depending on the rateable value. Where the rateable value is under £15,000, the grant entitlement is £10,000. A rateable value of £15,001 - £51,000 gives rise to a grant entitlement of £25,000. The relevant local authority will write to eligible businesses. 
  • Scotland – a one-off grant of £25,000 will be available for businesses with a rateable value of £18,000 - £50,999. The application can be made from 24 March 2020 and will be available until 31 March 2021. A list of those businesses that are eligible and ineligible is available here. However, it should be noted that self-catering premises are not eligible and only one grant can be applied for irrespective of the number of properties.  

8. VAT payments will be deferred for the three-month period from 20 March 2020 to 30 June 2020. This applies automatically without the need for application and the relevant business will have until the end of the 2020/2021 tax year to pay the deferred tax liability. VAT refunds and reclaims will continue as normal.

9. Income tax payments for self-employed will also be deferred from 31 July 2020 to 31 January 2021. As with the VAT deferral, this is automatic without the need for application. 

10. HMRC is also scaling up its Time to Pay arrangements for those with outstanding tax liabilities who are facing temporary financial distress during this period. There is a dedicated telephone line available to contact HMRC for such arrangements: 0800 0159 559.

11. SME businesses and employers with fewer than 250 employees as at 28 February 2020 will be entitled to reclaim Statutory Sick Pay paid to employees. Details of the rebate scheme to claim repayment are awaited.

12. The British Business Bank is rolling out a new business interruption loan scheme, which will be available to SMEs and other businesses with a turnover of less than £45 million to provide access to bank loans and overdrafts of up to £5 million over a 6 year period, which will be 80% government-backed. This will include a payment covering interest for the first 12 month period and certain fees of the relevant lender. This will be similar to the existing Enterprise Finance Guarantee (EFG) arrangements that are already in place. There are 40 lenders currently signed up to the scheme, which will come into force this week (w/c 23 March) and will require businesses to apply to/contact their relevant financial institution to progress assessment as to eligibility.

13. The Bank of England is also making available a financing facility known as the Covid Corporate Finance Facility (CCFF) whereby the Bank of England will purchase short-term debt (with a maturity date of up to one year) in the form of ‘commercial paper’ from larger firms to support liquidity. The CCFF is aimed at non-financial companies that make a material contribution to the economy and satisfy the eligibility criteria of the Bank of England. A key requirement is that the business was in sound financial health prior to COVID-19, meaning a short or long-term rating of investment grade, as at 1 March 2020, or equivalent. Further details of what is meant by “commercial paper” and the eligibility criteria can be found here and further information on participating lenders is available on the UK Finance website.

14. It may well be possible to make an insurance claim as guidance has been issued that suggests those businesses, including those in the hospitality and leisure sector affected by COVID-19 crisis/lockdown may be able to make a claim (subject to the wider policy conditions being met/complied with). It is therefore worthwhile to continue to review the policies you have in place and engage with your insurers accordingly.

15. If insolvency does occur, the Crown preference provisions giving HMRC an elevated position as a preference creditor will now be delayed from 6 April 2020 and will apply to insolvencies from 1 December 2020 (see our previous note regarding the nature of the preference being given). However, the prescribed part available to unsecured creditors in insolvency will increase from £600,000 to £800,000 in relation to insolvencies with floating charges created on or after 6 April 2020.

16. As at 25 March 2020, consultation with stakeholders in the insolvency market continues and calls have been made by certain stakeholders for legislative changes to be introduced to restrict creditor winding up petitions being presented, to extend the interim moratorium available as part of the administration process and to review the provisions that could pose a risk of personal liability to directors including in relation to wrongful trading. Further developments are awaited. However, it is clear that the wider implications and consequences of the COVID-19 continue to be taken under consideration, and further measures may well be introduced.

17. Further, on 25 March 2020, the First Minister announced further support in relation to bus companies who have reported a significant drop in concessionary travel. In particular, it has been stated that “the Scottish Government will pay them for the concessionary travel that they were forecast to provide, rather than the concessionary travel they do actually provide. And that will deliver support worth tens of millions of pounds to bus companies at a very challenging time.”

Read all of our articles relating to COVID-19 here.

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