What directors need to understand

Firstly, as we’ve written previously, the furlough scheme introduced under the Coronavirus Job Retention Scheme (CJRS) will begin to be phased out from July 1st. 

This means that businesses’ contributions to their furloughed staff’s wages will increase from 5% to 14% to include a greater share of the national insurance and pension costs. 

Businesses that successfully obtained a VAT deferral on payments from 2020 will now have to begin repaying them, while many companies that took out borrowing under the bounce back loan scheme or CBILS will see their repayments come due for the first time if they arrange to defer them six months. 

It’s worse news for businesses in the retail, leisure and hospitality sectors too as they lose their business rates exemptions, even while some of them remain closed and unable to trade until July 19th at the very earliest. 

The government confirmed that winding up petitions will still be temporarily suspended until September 30th but interestingly, wrongful trading suspensions will resume. 

What is the difference between wrongful trading and fraudulent trading?

Wrongful trading, or trading while insolvent, should be a concern for directors because as well as disqualification, they could also be held personally liable for any debts the business incurs during this period. 

The leeway this suspension granted directors has now disappeared and if a business can’t pay its debts when they come due or if their liabilities exceed total assets then they run the risk of wrongful trading and the potential penalties it carries. 

Another temporary measure being allowed to lapse involves termination clauses. 

This has stopped suppliers from ceasing their supply or asking for any additional payments or security from a business that is undergoing a restructuring or administration process. 

The perfect window of opportunity

All of this might indicate a looming crisis for some companies but Chris Horner, insolvency director with BusinessRescueExpert, thinks it can be the perfect window of opportunity, if they move quickly enough to take advantage. 

He said: “Directors and business owners have approximately 12 weeks until September 30th when they can take a positive decision to secure the best chance of future prosperity of their companies.

“They will have to move quickly before winding up petitions and other threats such as HMRC enforcement actions and visits from bailiffs become a possibility but they will have a range of options available to them depending on the individual circumstances they’re facing. 

“Whether they ultimately decide to close the business through a liquidation process or if an administration or a CVA are more appropriate, all are able to accommodate businesses with PAYE or other tax arrears, bounce back loan or CBILS debt and other unmanageable corporate debt. 

“This also applies to businesses that could be at threat from termination clauses being invoked. Construction companies for example that rely on the guaranteed availability of materials could quickly find themselves in difficulties if suppliers start to use their newly restored rights. 

“Otherwise profitable businesses could find themselves trading while insolvent through no fault of their own but due to the actions of a supplier. If this happened within this 12 week window of opportunity, they would be able to use the circumstances to their advantage to come up with the best recovery strategy.”

If there’s one lesson the past 18 months have taught us, it’s that things can change very quickly. 

As the coronavirus support measures begin to be withdrawn, it provides possibly the last opportunity for business owners and directors to get active in their own rescue and make decisions before they’re forced to, under less favourable circumstances. 

Start by getting in touch with us. 

We’ll arrange a free, initial consultation where, once we get a better understanding of your situation, we can outline your options and begin working with you on a plan to implement them quickly, efficiently and effectively. 

Then you might be able to finally enjoy the summer.