By Mark Davies and Jan Chillery, Senior Insolvency Solicitors at Aaron & Partners 

The Insolvency team from leading legal firm Aaron & Partners have produced a guide aimed at helping UK business owners and managers navigate the current economic climate

Senior insolvency solicitors at Aaron & Partners, Mark Davies and Jan Chillery, who are both listed in the industry’s coveted Legal 500 rankings have put together the advice based on an influx of questions from businesses and more than 30 years’ experience of managing insolvency cases.

Mark said: “The impact of coronavirus is projected to be very significant and although health concerns rightly trump all others, many business owners are now having to assess the damage this could have on their business and livelihoods.

“With restaurants, bars and pubs closing their doors to the public, we’re likely to see the ripple effect across a number of other sectors in the coming weeks and months.

“As a business owner, it’s vital to move quickly and take the necessary steps in order to give your business the best chance of surviving through these uncertain and unpredictable times.”

Jan added: “As a result of the sudden economic downturn, business owners are facing a huge number of complex issues that are developing and changing day-to-day.

1. Adopt a laser-like focus on managing cash

This means understanding the current position and preparing cash flow forecasts, then monitoring the position regularly. Decisions may need to be made as to which are business critical payments and which are not.

Many will be able to produce their own forecasts, particularly with modern accounting software. Others will need specialist assistance and your accountant is a good starting point.

1. Keep up to date with Government announcements

This appears to be updated literally on a daily basis, however at the time of going to press the Government has announced the following::

A package of measures to assist small businesses such as:-

• small business grant funding of £10,000 for all businesses in receipt of small business rates relief, or rural rate relief

• grant funding of £25,000 for retail, hospitality and leisure businesses with property with a rateable value of £15,000 to £51,000:

• Coronavirus Business Interruption Loan Scheme offering loans of up to £5 million for SMEs

COVID-19 Corporate Financing Facility, a new lending facility from the Bank of England to help support liquidity among larger firms, helping them to bridge disruption to their cash flow from loans.

Coronavirus Job Retention Scheme, available to all employers. This includes cash grants of up to 80% of wages for each employee not working due to Coronavirus issues (up to £2,500 per month). Our Employment team are on hand to answer any questions about the scheme and we also have a dedicated Coronavirus Resource Centre available on our website with further details of the scheme.

Deferral of VAT due in the next 3 months to the end of the year

12 month business rates holiday for all retail, hospitality, leisure and nursery businesses

This by no means an exhaustive list and we anticipate further announcements will be made.

• Seek support from your bank

Traditional banks have experienced teams of relationship managers which take control when their customer becomes financially distressed. In our experience, these tend to be supportive, provided they are approached at an early stage.

• Consider the Tax liabilities

Tax liabilities can be an issue for many businesses. HMRC has always been willing to consider a Time To Pay arrangement in a suitable case and HMRC are scaling up this service.

If you’re self-employed, the Chancellor has recently announced deferral for self-assessment tax payments to January 2021

• Be aware of the support available

Business owners may be able to handle their own negotiations with creditors, including Time To Pay with HMRC. However, there are specialist Time To Pay advisers who use their experience to best position a request and have considerable success. As your legal adviser we can signpost you to such advisers.

• Review contractual terms with suppliers

During these times, relations with suppliers can quickly become strained. The contractual terms may need to be reviewed to see if they permit room for manoeuvre. Irrespective of the parties’ legal rights usually there will need to be a dialogue to see whether both sides can agree a way forward.

• Communicate with creditors

In our experience, it pays to keep the lines of communication open with all creditors. This doesn’t mean telling them everything, and indeed that can be counterproductive. If there is or may be an issue then it is better to raise it sooner rather than later.

• Understand the threat of winding up petitions

So far there has been no change to the tapestry of laws which govern the position of struggling businesses, such as the right available to a creditor to present a company winding up petition if owed the sum of only £750.

This is in contrast to a bankruptcy petition against an individual, which must be for at least £5,000. Changes may be brought forward by the Government if levels of financial distress spike.

• Always take advice from qualified specialists

There are a number of options to be considered if the business is insolvent, and it is often possible to preserve value and jobs if matters are looked at early enough. We recommend seeking advice from those who specialise in this area of work. Beware of unlicensed advisers.

• Adapt and innovate 

We foresee the business community adapting its practices and being accommodating where it can. There are already stories of large businesses paying suppliers more promptly: this will make a significant positive difference to suppliers’ cash-flows.

Flexibility on all sides and a collaborative approach, based on honest communication, will go a long way to preserving businesses and therefore jobs.