As home working became the enforced norm for millions, home shopping followed and home deliveries rocketed as a result.
The haulage industry stepped up to keep supplies running while the warehouses worked with customary efficiency to get packages out as quickly as they were coming in.
The postal and courier delivery services stepped up and became a nearly daily feature of our lives, accepting packages for neighbours if we weren’t expecting and receiving them ourselves.
It’s difficult to think of any goods transported in the UK that aren’t involved in road transport in some way.
According to the Road Haulage Association (RHA) some 89% of goods are estimated to be directly moved by road and the 11% that aren’t will still require some road connection in their journeys between ports, airports and rail terminals.
The sector is the UK’s fifth largest employer and 2.54 million workers alone keep the haulage and logistics businesses operating.
But cruelly, just as the final government support measures are being withdrawn, transportation businesses are suffering.
In the latest business insights bulletin from the Office of National Statistics, more transportation and shipping companies are likely to have paused trading or shut down altogether than any other sector with just 82% of them operating as normal.
The report found that 9.1% of transport and storage firms have permanently ceased trading, while 8.5% are paused.
The average across the wider UK economy is 3.4% of businesses have closed for good while 7% have closed temporarily.
It found that the high percentage of paused and not permanently ceased traders was partly driven by the freight transport by road industry and the unlicensed carriers industry which is experiencing a shortage of lorry drivers.
The knock-on effect of these and other issues means the national supply chain is affected with 7% of UK businesses unable to get materials and staff in the last fortnight with others forced to switch suppliers or make alternative arrangements.
Rod McKenzie of the RHA said that in the short term drivers’ pay is increasing to stimulate demand but: “This in turn is a cost that will need to be passed on, and given the tight profit margins of most haulage operators that means their rates to customers will have to go up.
“In turn, this may mean more of us paying higher prices for goods, services and shopping - including food prices - going forward.”
Who kept the show on the road?
According to the figures from March 2019 to February 2020 - there were 527 insolvencies involving businesses in the transportation sector.
In the immediate 12 months afterwards from March 2020 when the first nationwide lockdowns were implemented to February 2021, there were 382 closures in the sector.
Now, according to official statistics supplied by the Insolvency Service, there have been an additional 156 transportation sector insolvencies since March this year which takes the total number since lockdown to 538 - which is 33 a month or over eight a week pulling down their shutters for the final time.
Ominously, 51 businesses in the sector became insolvent in June this year, the last month figures were available for, the largest monthly total recorded since March 2020.
Did bounce back loans soften the blow?
Many transportation companies took advantage of the support options available to them throughout the pandemic and recovery period.
Many furloughed staff rather than making them redundant and others looked for government-backed borrowing sources such as bounce back loans or CBILS to help them through this unprecedented period.
The number of bounce back loans taken out by UK transportation services was 77,920 with a total amount borrowed of £2 billion.
This is an average loan amount of £25,667 per company.
Under the most conservative official estimates, it’s expected that 15% of the total lent to the industry would remain uncollected would be £300 million but if the default rate rose to even 40% then this figure would also grow to £1.2 billion.
Now the end of the line for the furlough scheme is in sight and while the temporary suspension on winding up petitions is being lifted to an extent, it will come with a £10,000 price tag until the end of March 2022 meaning some, but not all, creditors will stay their immediate legal attempts to force repayment.
Of course this doesn’t apply to any bounce back loan arrears or other borrowing amounts which have yet to be repaid. Nor will it impact on owed VAT arrears or stop business rates being reapplied to companies with physical properties.
Chris Horner, Insolvency Director with BusinessRescueExpert.co.uk thinks transportation businesses have a bumpy road to travel in the near future. He said: “Despite performing heroically during the pandemic and lockdown, the sector has been hit with a triple blow almost instantaneously.
“An unlucky combination of Covid-19, Brexit red tape and personnel shortages means a lot of businesses in the sector are facing dire financial conditions just when they should be gearing up for the busy Christmas and new year period.
“Unfortunately the timing of these issues are hurting a lot of otherwise viable transportation firms. Bounce back loan and VAT arrears are building and the lenders will be taking more active steps to recover this debt.
“One thing transport and logistics businesses can do is move quickly when they need to and if they can arrange some professional advice and act on it, they might still be able to make the necessary changes and protection to get back to doing what they do best and keeping the country literally on the road to recovery.”
Any business owner or director of a transportation focused business will tell you that logistics only works when there are no blockages in the system.
One hold-up can affect the whole network, impeding every channel until the problem is solved or removed.
But once it’s cleared, the recovery is usually quick and normal productivity and services are functioning again swiftly.
So it is with business rescue and restructuring. Once the biggest problems are identified and solved, upward progress usually follows in short order. But only when they’re dealt with.
We offer a free initial consultation to directors and business owners to identify what problems are holding their companies back and we’ll work with them quickly and efficiently to diagnose the most effective solutions.
The remedies can often be put into practice immediately but they can only work if the management seizes the chance to take action before it’s finally too late to change.
For instance, it’s common sense for builders, scaffolders and cement pourers to be classed together under construction but what about a travel agent and a security guard?
Or a car leasing company and a landscape gardener? Or an employment agency and a bouncy castle hire business?
They all come under the seemingly disparate title of administrative and support businesses which is a broad umbrella title that covers amongst others:
So now we know which sort of businesses we’re talking about - how did they collectively manage during the year of lockdowns and afterwards?
Less is more
The initial figures show that in the year leading up to the first lockdown being implemented - Mar 2019 to Feb 2020 - there were 1,798 insolvencies involving businesses in the administrative and support sector.
The immediate 12 months afterwards - Mar 2020 to Feb 2021 - saw 1,421 administrative companies close.
Although this is 377 less, it’s still larger than might have been expected considering the temporary halt on creditor actions like winding up petitions and the range of additional support made available to businesses over the past 18 months.
1,421 is a larger number than the losses reported by the hospitality and retail sectors, which were most popularly believed to be the worst affected in the pandemic with 1,378 hospitality companies and 1,355 businesses in the retail sector becoming insolvent.
According to official statistics supplied by the Insolvency Service, there have been an additional 358 insolvencies in the administrative sector since March this year which takes the total number since lockdown to 1,779 - which is 118 a month or 29 a week shutting their doors.
Did bounce back loans soften the blow?
The coronavirus jobs retention scheme or furlough, did help a lot of administrative businesses keep staff rather than forcing them to be made redundant.
As the travel industry ground to a halt and nightclubs and other sectors that would usually require security staff didn’t need them, administrative businesses with no income needed support and quickly.
The bounce back loan scheme and CBILS was rolled out for just such a purpose and these companies made use of it.
The number of loans taken out by administrative services was 102,946 - more than the collective borrowing of the manufacturing, real estate and transportation business sectors.
The total amount borrowed was £3 billion, which is an average borrowing amount of £29,141 per company.
Under the most conservative official estimates, it’s expected that 15% of the total lent to the industry would remain uncollected would be £450 million but if the default rate rose to even 40% then this figure would also grow to £1.2 billion.
Since pandemic restrictions began to be lifted, administrative businesses can begin trading again and supplying their valuable services to customers but there are storm clouds gathering on the horizon.
The furlough scheme is finally being wound up at the end of September which means businesses either have to bring their furloughed workers back on full pay or implement redundancies.
Any bounce back loan or CBILS arrears will continue to grow if they’re not being paid and any outstanding VAT arrears from their suspension in 2020 are now due too.
Creditors will also be able to begin to take action to reclaim unpaid debts from September 30th too, allowing them to seek statutory demands and winding up petitions if not paid within 21 days of receipt.
Chris Horner, Insolvency Director with BusinessRescueExpert.co.uk said: “Administrative businesses have had one of the worst hands dealt to them during the pandemic and lockdown.
“A lot of them didn’t qualify for any support other than bounce back loans and repaying these could become one of the biggest challenges businesses face this and next year if they aren’t able to trade like they did before.
“The travel industry is still in flux to put it mildly, hospitality and nightclubs are just reopening but will need to comply with new rules and regulations shortly with little guidance being given to their security on how they will be implemented.
“The shakeup in the commercial property sector will have big knock on effects for cleaning and landscaping businesses that service them so will make their financial forecasting nearly impossible to predict too.
“One thing administrative and service businesses can do is adapt and adapt quickly so they can use their talent and experience to take advantage of the little time left before September 30th and get some professional advice on how they can help themselves before so many rules change.
“A recovery strategy can work but only if it’s created and implemented now. This can include managing any unsustainable debt including bounce back loan arrears, VAT arrears or CBILS.”
A lot of people thought that by the end of September 2021, if not business as usual, we’d be at a stage of business getting back to usual.
But for many companies and sectors - especially administrative and support businesses - it really isn’t.
Debts have increased, more are appearing and the last protections from creditors are days away from being removed.
There could still be a practical way forward for a business in this position but only if they take the first step and get in touch to arrange some practical, professional advice.
We offer directors and business owners a free, initial consultation to set out their position and once we get a full understanding of the issues we face, we can work with them to create a strategy to meet and defeat these challenges.
But get in touch today because after September 30th, the choices might be harder still.
The Coronavirus Job Retention Scheme, more commonly known as furlough, was launched in March 2020 to support businesses and employees through the unprecedented disruption caused by the coronavirus and subsequent lockdowns.
In our Year of Lockdowns report we found that one in three UK workers were in receipt of a furlough scheme payment at some point in 2020.
The popularity of the scheme peaked in April 2020 when just under nine million workers were furloughed although this total has reduced to just over 1.9 million by the end of June 2021.
According to the latest official figures, 11.9 million jobs had been placed on furlough by over 1.3 million employers at some stage during the previous 18 months at a total cost of £65.9 billion.
This might seem expensive but it would be argued by supporters that it fulfilled one of its primary objectives by holding the unemployment rate at 5.1% at the end of 2020 which saw an additional 1.7 million people looking for work but without furlough.
This figure has since reduced to 4.8% at the end of June 2021 and is currently only 0.9% higher than at the beginning of the pandemic.
Since May 2021, the central contribution to employees wages from the government has reduced from a figure of 80% of the total wage up to a maximum of £2,500 down to 60% of the total to a maximum of £1,875.
The employer continues to pay national insurance contributions (NICs) and pension contributions for staff as well as a 20% contribution to wages for hours not worked up to a maximum of £625.
Along with many other notable changes occurring at the end of the month, the one which is expected to have the most immediate effect is the final closure of the CJRS.
Chris Horner, insolvency director with BusinessRescueExpert.co.uk, thinks attention should be paid to the discrepancies between various sectors and mismatches between vacancies and employees when analysing the impact.
One example is in the hospitality sector including both accommodation and food services.
The Office for National Statistics vacancy survey showed that 117,000 jobs were available between May and June but at the same time 337,800 staff remained on furlough during this period.
Even if furloughed staff successfully reapplied for all those positions, there would still be over 220,000 workers left without positions.
He said: “When you have a mismatch between the sectors that people are on furlough from and the sectors that are actively recruiting then there will naturally be an imbalance that has to be carefully managed - both in terms of the personnel and the support given to businesses in those areas.
“Some skills will be transferable but not every position is.
“Sales assistants and hospitality staff might not want to take pay cuts to move into the care industry or spend time retraining as a delivery driver or production operative for instance.
“This could clearly have implications for businesses and unemployment in the short term at least.
“For small business owners and directors, who are already juggling with bounce back loan repayments, VAT arrears, the return of creditor actions including winding up petitions and business rates, a staffing crisis will be the last thing they need.”
If you think the school holidays and summer went quickly, you won’t believe how soon the end of September will arrive.
There is still just enough time to get in touch with us and arrange a free initial consultation with one of our expert advisors.
If you’re worried or already having problems repaying debts like bounce back loans or VAT arrears then we can help advise you on what your options are.
The sooner you take action, the more time and leeway you’ll have to use - because sadly, time and choices will eventually run out.
But is there a way that they can come back? And why would a director want to resurrect a closed company anyway?
Administrative restoration is the official term for bringing a dissolved company back into existence and we’ll explain further how they can be returned to life and why directors might want to do this.
One reason why a dissolved company could be restored is if the directors believe it may have a profitable future trading again. Maybe the market conditions have changed or they are in a better position to make a success of the venture now than they were previously.
The only limit to restoring a business in this way is it cannot have been dissolved for more than six years.
The six year time limit also applies when directors look to restore a business in order to release and realise an asset.
If a business is struck off or dissolved while still holding assets then they could become the property of the crown after a certain amount of time has elapsed. Also, they could be classed as ownerless or “bona vacantia”.
In either scenario, if this is why a company is being restored then Companies House could temporarily place the business back on the register in order to facilitate the asset transfer or sale.
Unlike the administrative restoration time limit of six years, there is no such restriction when it comes to pursuing claims against a dissolved business. The company might have to be restored in order for an injury or other legal claim to be lodged against it and subsequently defended.
The final reason to restore a struck off company is to rectify mistakes made during the initial process.
A company can only be struck off if it has no debts or arrears.
Under the imminent Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill - HMRC and the Insolvency Service will be granted retrospective investigation powers against directors.
This will allow them to look at the circumstances and actions of directors of dissolved companies and if any errors were made, such as striking off a business with an outstanding bounce back loan or VAT arrears for example, they could be followed with sanctions.
These would not only be fines or a disqualification period which could stretch to 15 years but under the new laws, directors could be made personally liable to repay company incurred debts.
Businesses that have been struck off by Companies House for failure to submit annual accounts or confirmation statements can also be reinstated but like all administrative restorations, they have to meet a certain criteria such as trading when they were struck off and that Companies House enforced the decision, not the directors.
If they do then they can apply to Companies House and complete an administrative restoration form.
If the business was not forcibly removed or doesn’t meet the criteria then they can seek company restoration by a court restoration order instead.
Once the application is filed and if all the essential forms such as business accounts and financial statements are up to date then the procedure will usually be completed in about four months.
Chris Horner, insolvency director with BusinessRescueExpert.co.uk said: “Restoring a company just to liquidate it might sound like a hassle but it could be the best thing a director could do to protect themselves if they have any concerns.
“The new legislation is almost exclusively aimed at directors who have tried to avoid repaying bounce back loans and other debts through dissolving their businesses.
“But directors who inadvertently struck off their company while it still had debts could very well get caught up in the same sweep.
“Directors who liquidate their companies voluntarily through a creditors voluntary liquidation (CVL) or other process don’t have anything to worry about - HMRC and the Insolvency Service are not targeting them.
“To avoid any doubt and worry, it would make sense for a director to restore their company, liquidate it and then continue with their career after all the loose ends have finally been tied up.
“They would then avoid disqualification and being made liable for a compensation order up to the value of the company debts plus fines and costs on top.”
Liquidation brings many benefits to a business owner or director.
As well as having more say in the process of appointing a liquidator, they can also legally close down even if they owe bounce back loans or other debts.
It brings finality to the situation through a definitive ending allowing the owners or directors to move onto their next venture without any more stress.
If a business has been dissolved improperly or if it had debts when it was struck off then this is a loose end that could become a bigger problem - especially if the Insolvency Service takes an interest in the business and how it was being run before closure.
Getting advice from an insolvency professional is always a good idea if you’re thinking about closing a business but if you need to consider an administrative restoration then it’s essential.
We offer a free initial consultation for any business owner or director to discuss the issues facing their company and together we can work out an efficient and effective solution which can usually be begun to be implemented almost immediately.
The sooner you get in touch, the sooner we can help.
The report found that although essential, the government’s overall response to the pandemic had exposed the taxpayer to significant financial risk for the foreseeable future and that while departments faced difficulties in responding quickly to the pandemic, these risks did not always achieve good value for money.
The committee singled out the bounce back loan scheme as one of the programmes with a high level of risk reporting an estimated £26 billion of credit and fraud losses uncovered so far.
Dame Meg Hillier MP, Chair of the Committee, said: “With eye-watering sums of money spent on Covid-19 measures so far the government needs to be clear, now, how this will be managed going forward, and over what period.
“The ongoing risk to the taxpayer will run for 20 years on things like recovery loans, let alone the other new risks that departments across government must quickly learn to manage.
“If coronavirus is with us for a long time, the financial hangover could leave future generations with a big headache.”
Among the main conclusions and recommendations in the report are:
The report also highlighted the work of the National Audit Office’s (NAO) Covid-19 cost tracker which tracked expenditure and costs across the whole of government and pulled them together in one place.
The NAO are working on a follow-up to their October 2020 report specifically into the bounce back loan scheme.
It is scheduled to be published in the winter of 2021 and will update their findings on the overall amount of bounce back loan arrears that have been repaid to date and how much remains outstanding.
We’ve been reporting on bounce back loan arrears and repayment scenarios since April including regional and industry differences so know that whatever number they come up with, it’s going to be big and focus will then shift from data collation to debt recovery.
HMRC and the Insolvency Service are going to be very busy for the rest of 2021.
They are already using their existing powers to close down businesses and sole traders who falsely obtained bounce back loans and are turning their attention to companies who took them out legitimately but have built up arrears.
A recent FOI inquiry from BusinessRescueExpert.co.uk revealed that they are being helped by the Department of Business, Energy and Industrial Strategy (BEIS) who are objecting to companies with bounce back loans from being struck off the Companies House register.
And the final piece of the enforcement jigsaw is still to come with the introduction of The Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill which is proceeding through parliament at the moment and expected to become law before the end of the year.
Amongst the new powers it will grant The Insolvency Service retrospective powers to investigate the directors of companies that have been struck off to examine the circumstances of the dissolution.
Because the powers are retrospective, they can go back two or three years after the fact and are not limited to bounce back loans but other debts too.
Any director targeted under the new law could reasonably expect sanctions including fines, disqualification of up to 15 years and potentially being made personally liable for repaying any illegally obtained debts and costs incurred.
With the remaining government support measures being withdrawn at the end of September and creditors actions such as statutory demands and winding up petitions being allowed to be issued once again, businesses with outstanding bounce back loans and other debts including VAT arrears or unpaid rent or business rates will be understandably worried.
Instead of wondering when and where the first creditors’ blow will land, directors and business owners can use this time to draw up their own counter strategies starting with some professional insolvency advice.
During a free initial consultation, we will better understand the situation facing a business and give our honest appraisal of the options available, depending on what they would like to do.
Some businesses might want or be able to restructure their debts and eventually trade their way back to profitability with creditors help and forbearance through a company voluntary arrangement (CVA).
An alternative option might be a company voluntary liquidation (CVL) if there is no realistic path to recovery.
This will allow the orderly closure of a business even if it has bounce back loan debt and other outstanding arrears that it can’t reasonably clear.
There are choices and chances that can be taken - but only if the directors or business owners act in time to access them and work with us to act on them.
Stress might be one of the most misapplied words in common usage.
Any good construction professional will be able to explain that stress is a temporary force acting on structure while strain is a permanent change - either in shape or size - directly resulting from the pressure of that stress.
A little stress can be a good thing as it can prove that a design or structure is working as it’s meant to. It’s when it becomes a strain that more serious issues can occur.
So has the previous 18 months caused the construction industry severe stress or has it turned into a permanent strain on the sector?
Year of Lockdowns
No UK industry was more badly affected by the pandemic than the construction industry.
From March 2020 when the first lockdowns were instituted to the end of March 2021 more than 1,600 building firms closed down permanently.
This is higher than both the hospitality and retail - two sectors previously thought to have fared the worst since the pandemic began.
1,634 firms in construction went under during this period compared to 1,378 in hospitality and 1,355 in retail.
In our Year of Lockdowns report, we broke down how the pandemic had affected every aspect of life across the country for businesses, their owners and staff.
We found that the halting of various large and small scale building projects had badly damaged all elements of the construction industry.
According to official Insolvency Service statistics, there have been an additional 596 construction insolvencies since March taking the total number since lockdown to 2,230 or 34 a week.
In this month alone, Darlington based Cleveland Bridge and All Foundations, one of the country’s top piling contractors, entered administration while Mansfield based Minister and AM Griffiths from Wolverhampton ceased trading altogether and went into liquidation.
Sadly, they will be joined by other notable names this year.
Loans granted but will construction bounce back?
The various government support schemes greatly benefited construction during the past 18 months.
The coronavirus jobs retention scheme, better known as furlough, allowed them to retain some of their most valuable staff while sites and projects shut down and borrowing such as CBILS and bounce back loans allowed them to quickly access funds to support themselves.
Especially bounce back loans.
The construction industry collectively accessed the most bounce back loans of any sector with nearly a quarter of a million bounce back loans granted - 238,825.
The total amount borrowed was £7 billion, second only to the retail industry, which is an average borrowing total of £29,310 per company.
Under the most conservative official estimates, it’s expected that 15% of the total lent to the industry would remain uncollected which is a not inconsiderable £1.05 billion.
This doesn’t just affect large contractors and builders but many sole traders and partnerships too, which make up a large proportion of the industry.
Next month sees a further bottleneck of trouble brewing for already struggling builders.
The coronavirus job retention scheme better known as furlough is finally wound up meaning businesses will either have to decide to welcome workers back on full wages with no government support or consider redundancies.
Bounce back loan and CBILS payment arrears will continue to be demanded along with any unpaid VAT arrears from 2020.
Also certain creditors actions are set to resume on September 30th allowing creditors to seek statutory demands and winding up petitions for unpaid debts and a further small but critically important protection for constructors is also being removed.
Termination clauses were suspended which stopped suppliers from ceasing their supply or asking for any additional payments or security from businesses that are undergoing a restructuring or administration process.
From the end of next month they will be able to once again, which will place further strain on otherwise viable but struggling companies and potentially lead to more disorganised and chaotic collapses rather than professionally managed recovery strategies and business rescue plans.
Chris Horner, Insolvency Director with BusinessRescueExpert.co.uk spotted this specific danger last month when he said: “Construction companies that rely on the guaranteed availability of materials could quickly find themselves in difficulty if suppliers start to use these newly restored rights, right away.
“Due to the actions of a supplier, otherwise profitable businesses could find themselves trading while insolvent through no fault of their own.
“If a builder, civil engineering practice or other vital part of the construction industry that underpins so much of the country’s infrastructure is now worried about what these changes will mean, we can help reassure them.
“There is a small window of opportunity for them to act - right now - before September 30th.
“We can help them formulate a recovery strategy for their business that will protect them into the Autumn months and beyond.
“This includes if they have bounce back loan arrears, CBILS debt, VAT arrears or other unsustainable debts that have built up over the previous 18 months.”
Construction businesses naturally have a genius for delegation.
Not just using the right tool for the job but the right subcontractors, the right workers and the right people in the right places at the right time.
We employ the same principle for businesses facing financial difficulties.
The sooner a business owner or director gets in touch to arrange a free initial consultation, the earlier we can let them know what options they have and the quicker they can be implemented.
Rules, regulations and trading conditions will change next month along with the seasons so act today so you won’t be caught out tomorrow.
We’ve all seen multiple examples of it on social media especially, people will gleefully share false news and images that a simple check of the BBC or other reputable news site could tell them is not true.
Received wisdom and advice can be harder to disprove than this so we find it annoying when we hear false and wrong advice passed off as something credible.
One example we’re sadly hearing a lot about recently is the idea that companies with debts, including bounce back loans, business rates and VAT arrears, can simply dissolve themselves and these obligations away into thin air.
Usually sensible people have been taken in by this one in particular - we even had a good client ask us “why should I pay for my company’s liquidation? Can’t I get it for free if it’s struck off?”
The liquidator has to investigate the conduct of the directors in the lead up to the liquidation as a mandatory part of the process but if you have done everything in your power to keep the business running and have kept your records in good order then you’ll have nothing to worry about.
Even if, in hindsight, you’re worried about how a couple of your decisions and actions might be viewed, you can explain the circumstances and rationale to the liquidator and if you can provide supporting evidence, they will be quite likely to accept your version of events and say so in their report to HMRC.
The same doesn’t apply for directors who try to strike off or dissolve their company with outstanding debts - whether they be bounce back loans, CBILS, VAT arrears or other tax payments they owe.
The rules about striking off are very strict and explicit - no company with debts can be struck off.
But this doesn’t stop some unscrupulous business owners from trying to dissolve the firm to avoid their obligations - or honest directors that have received some bad advice and been told that this is possible.
There’s a new law making its way through parliament at the moment - the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill - that will give dishonest directors some pause for thought.
Right now director disqualifications can be implemented for clear offences such as falsifying records and taking money out of an insolvency business.
Any attempt to defraud HMRC by deliberately avoiding paying bounce back loan debts for example, would also very likely lead to disqualification.
The HMRC have held their fire considerably during the pandemic and subsequent lockdown periods because of the unique situation a lot of otherwise viable and profitable businesses found themselves in.
Things are changing as more industries begin to trade without restrictions, HMRC and The Insolvency Service will also be moving up the gears to begin recouping some of the historic levels of support paid out.
One way they will do this is by using new powers given to them by the bill that allows retrospective investigations and actions to be taken against directors for the first time if they’re found to have dissolved their company with outstanding debts.
Company strike offs and dissolutions will be examined to see if any were carried out with outstanding debts and if discovered could lead to punishments including fines, disqualifications of up to 15 years and personal financial liability to settle the debts placed on the directors.
Business Secretary Kwasi Kwarteng said: “We need to restore business confidence and people’s confidence in business.
“This is why we won’t hesitate to disqualify directors who deliberately leave employees and taxpayers out of pocket. Extending powers to investigate directors of dissolved companies means those who have previously been able to avoid their responsibilities will be held to account.”
Chris Horner, Insolvency Director with Businessrescueexpert.co.uk, sets out the likely scenario.
“The new legislation is clearly aimed at those directors who thought they’d be clever and try to dissolve their companies to avoid paying their creditors - including HMRC.
“Directors who’ve done the right thing and liquidated their companies voluntarily through a creditors voluntary liquidation (CVL) or other process don’t have anything to worry about from the bill.
“Dissolution or striking off a company is a cheap and efficient way of closing a dormant or debt free business and thousands of businesses do it every year.
“It’s the small minority of directors who thought it was a great way to dodge their debts that should rightly be dreading a letter, email or increasingly possible from the end of September - a knock at the door.
“An important point to make for businesses that legitimately took out bounce back loans or CBILS borrowing is that they aren’t HMRC’s primary target either.
“ As long as they have kept records and documentation or other evidence that supports their explanations on how the money was used, why they borrowed it, how their business functioned during the pandemic then they can be confident that they can answer any questions fully and convincingly.
There are several other good reasons why you should be happy to liquidate your business voluntarily:
You can take advice and pick the insolvency practitioner choice of your choice to oversee the process and guide you through the issues and requirements.
If a company goes into liquidation any personal guarantees directors have given on debt will crystallise - becoming payable immediately. A liquidator will help you create a plan to deal with this situation. Similarly, a liquidator has a duty to recover any funds owing from overdrawn directors loan accounts and can advise ahead of time the best course of action to deal with this eventuality.
A liquidator can advise on the redundancy procedure for existing staff and/or the transfer of existing staff to a new business (TUPE).
One often overlooked but important detail is that directors who have been paid via PAYE are also eligible for redundancy payments.
The liquidator can advise the best way forward to access what could be some vital income - especially as it may be possible to use it to finance the liquidation process with the proceeds.
There are a lot of things that have to be done correctly in a liquidation and it can be easy to lose track of them, especially if your attention is being pulled in several different directions.
The liquidator will keep you on track of what needs to be done, how and when including the sale of assets, transfer of leases and several other requirements.
Topics such as liquidation and dissolution can be stressful at the best of times but even more so when sanctions such as disqualification and being made personally liable to repay any debts your company was closed down inappropriately or deceitfully.
The vast majority of businesses that have closed down in the past two years have nothing to worry about. They did their duties to the best of their ability and made the difficult but ultimately correct decisions to close their companies down.
Several others might now be in a similar position and are nervous that although the correct decision is to liquidate the business, this wouldn’t be the end of matters for them or the company.
We can reassure them in one conversation.
After a free initial consultation with one of our expert advisors, directors will have a far clearer idea of what options they have to close or restructure their companies, the costs involved and what the likely timescales will be.
Then, for the first time in a while for many, they will finally be able to see an end to their problems and be able to think of new beginnings instead.
They recently announced that trading at its out-of-town retail parks was almost back to pre pandemic levels and that as a result rent collection had improved across its portfolio.
This is encouraging as footfall and sales at their covered shopping mall properties remain at 75% and 89% of 2019 respectively.
Despite rent falling sharply during the pandemic and lockdown periods, British Land collected 85% of the £87 million due in rent during the June quarter, up from 72% collected in December. They received 91% of rent due in the March quarter so industry experts will be watching the September take closely.
The company has already informed tenants that “with trading restrictions substantially lifted and the vast majority of our customers trading well and paying the rent due, we do not expect to make further concessions this quarter”.
There will be no more rent concessions or write offs forthcoming from Hammerson either.
The owners of the Birmingham Bull Ring and Brent Cross shopping centre in London have also warned tenants that “all avenues to collect rents due are being pursued.”
They said they had waived, written off or not collected £26 million of rent due in 2020 and £15 million due so far for 2021.
This contributed to their only collecting 62% of the £154 million due in total rent this year and still have 11% of their annual £264 million rent take outstanding from last year.
“Many retailers continue to report high sales and conversion rates as visitors shop with purpose”, Hammerson said.
Commercial tenants who owe outstanding rent should expect that their landlords will also act with purpose from September onwards to recoup outstanding debts once the restrictions on creditor recovery actions ends on the last day of the month.
The announcements come ahead of news that the government is planning to bring forward new insolvency legislation aimed at protecting businesses from accrued debt and rent arrears as a result of the pandemic.
A policy paper has been published with new provisions that will ringfence rent arrears caused by “enforced closures” and introduce a process of binding arbitration between landlords and their commercial tenants.
The British Property Federation (BPF) reported that UK businesses had built up a combined £7.5 billion of commercial rent arrears up to June 30 2021 due to the overall impact of Covid-19.
According to the published guidance, the new provisions will be a backstop or a last resort to be used where landlords and tenants haven’t been able to settle a dispute and come to a mutual settlement on how rent arrears will be paid.
They will be published before any system is put into law to give landlords and tenants the necessary time and motivation to negotiate.
A spokesperson said: “As soon as legislation is passed, the commercial tenant protection measures will only apply to ring fenced arrears. This includes rent debt accrued from March 2020 by commercial tenants affected by Covid-19 business closures until restrictions for their sector are removed.
“This means that landlords will still be able to evict tenants for the non-payment of rent prior to March 2020 and after the end of restrictions for their sector and who have not been affected by business closures during this period.”
The new rules will come in addition to the amendment to Section 82 of the Coronavirus Act 2020 which prevents landlords of commercial properties from evicting tenants for the non-payment of rent until March 25 2022.
Landlords are being prevented from using CRAR unless the tenant owes 554 days’ rent by June 24 2021 but this amount may change once the restriction lapses.
In reality, all of this means that it’s a return to normal contractual arrangements under the terms of the signed lease for tenants that are able to pay their rent arrears in full and weren’t affected by closures.
It also stipulates directly that it doesn’t include any debts accrued outside the ring fenced period.
The aim of the arbitration is to be an “impartial and manageable process” and a faster or easier alternative to going through the courts. The government does expect that landlords and tenants both contribute to the cost of the arbitration if they are both found to have negotiated in good faith.
The arbitrator will also have the power to award the whole cost of arbitration to one side if they find the other party has not been entering into the spirit of the agreement.
So we know the roadmap and what’s going to happen but what is the situation for businesses with rent arrears now?
In short, the government expects companies that are open and trading normally to pay their ongoing rent in full according to their lease terms. If they’ve agreed different conditions with their landlords then they should stick to them - normal operation periods are not covered under the new rules.
To help their case, and avoid any doubt, if tenants have any arrears covered by the ringfenced period, they should state in writing to their landlord what time period payments they make should be apportioned to.
Landlords can charge interest on rent incurred from the end of the ring fenced period onwards if interest payments are included in the lease terms. Also if the tenants breach any other lease terms which could give rise to forfeiture (e.g. property damage) then the landlord is still able to evict them on that basis.
Can a landlord enforce rent arrears at the moment?
Even though the legislation is on its way, don’t think that landlords are powerless to bring enforcement action against delinquent tenants.
They still have a range of options available to them including:-
The ultimate aim of the legislation is to help viable businesses continue to trade their way back to profitability and pay off any rent debts or arrears that are genuinely down to the pandemic.
Some landlords and tenants had already made agreements on rents but there are always some who can’t or won’t reach a compromise which the arbitration will help move to a conclusion.
There will be others who suspect that the moratorium on evictions is being used as an unfair tool to avoid paying rent and that it will give them the necessary leverage to definitively resolve the outstanding situation.
One area where there could be clearer indications of intent from the government is how businesses in sectors which moved between trading restrictions during the pandemic will be treated.
This includes non-essential retailers and eat-in restaurants that were subject to restrictions but were still able to trade such as if the restaurant offered a takeaway or pick-up meal delivery service.
Like any new legislation, expect it to be tested by individual circumstances early after it’s rolled out.
Rent arrears, like unpaid bounce back loans and outstanding business rates debt, might seem like an immovable object against the irresistible force of a landlord eager for repayment but if you can’t go through a problem, you can always go around it.
Unmanageable debt built up during the pandemic might appear to be a terminal issue but it needn’t be.
Once you get in touch with us to arrange a free initial consultation, we can help you take stock of your situation and plan a manageable and achievable forward roadmap to follow.
Whether it’s to create a restructuring and rescue plan that would be acceptable to your creditors or if an orderly liquidation is the only way forward - we can explain all the options and steps needed to bring you and your business to their next stage.
The bounce back loan scheme was a success for many of the businesses who used it to help them to keep trading or to support themselves and their employees whilst lock down was in effect.
The final official borrowing figures released by the government showed that over 1.5 million bounce back loans had been granted for a total of £47 billion - all guaranteed by the government.
Earlier this year, BusinessRescueExpert.co.uk conducted an investigation into the risk of defaults around bounce back loan borrowing and found that even the official best-case scenario would see nearly 230,000 loans remaining unpaid for a total of £6.9 billion - or the equivalent of building six new stadiums the size of Wembley.
At around the same time the Department of Business, Energy and Industrial Strategy (BEIS) that they would begin to enforce bounce back loan debt recovery imminently but carefully.
Business Secretary Kwasi Kwarteng wrote that: “HMRC would adopt a cautious approach to enforcement of debt owed to government that will have accrued” and that HMRC would soon update its enforcement methods so that any outstanding debt could be brought into managed arrangements for businesses affected by the pandemic and subsequent lockdowns.
Specifically he said that using insolvency to enforce payment would remain a last resort and that he recognised that “the path back to full trading will be difficult for many companies, particularly those with accrued debt and low cash reserves.”
If BEIS are playing the good cop in this scenario then the Insolvency Service are playing the bad cop - promoting their recent successful attempts to wind up several limited companies that had been involved in fraudulent activity including dishonestly obtaining bounce back loans.
Dave Elliott, Chief Investigator at the Insolvency Service said: “The bounce back loan scheme was made available to help support businesses during the pandemic.
“It’s outrageous that some directors have been trying to abuse this support, and the action we have taken shows we take this issue extremely seriously.”
Despite the tough talk, just how seriously are the authorities cracking down on bad bounce back loan behaviour by directors and business owners?
One growing trend we’ve noticed recently is where companies with outstanding bounce back loan arrears are attempting to dissolve their businesses, or have them struck off.
Company dissolution is a perfectly legal method of closing a company but comes with a set of strict conditions. It is not an available tool if the company owes any money, including tax or a bounce back loan. New legislation, specifically aimed at unscrupulous directors, is due to become law this year (but will apply retrospectively) and will be a big problem for those who’ve tried to close their company this way and avoid their legal responsibilities.
The Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill will allow the Insolvency Service to specifically target and pursue directors who close their companies by dissolving their businesses when they have outstanding debts.
One of the main new measures will see the Insolvency Service given retrospective powers to investigate directors of struck off companies and how they acted in the circumstances leading up to the dissolution.
Being retrospective, directors of businesses dissolved not only in 2021 but within the past couple of years can expect to be contacted in the near future if they had bounce back loans or tax debt..
Directors of businesses with outstanding bounce back loan debts trying to dissolve their business from now on can reasonably expect to receive an “Objection to Company Strike Off Notice”.
This prevents the company from being struck off and will also be an invitation for any of their other creditors to register their objections to the striking off as well.
Disqualification and fines
No system is 100% perfect so occasionally a business with outstanding debts slips through the net and is struck off.
What are the likely consequences facing directors who have managed to get their businesses struck off with bounce back loan arrears?
In the first instance the Insolvency Service will be looking to disqualify any directors of companies who have allowed their business to be struck off when it has debt. The disqualifications will be for up to 15 years depending on the circumstances. The directors will also be personally liable for fines and any costs incurred.
So now you’ve got a better idea of what could happen - we thought we’d go one step further and find out what’s actually going on with dissolution objections right now.
Businessrescueexpert.co.uk lodged an FOI inquiry with BEIS earlier this month to ask if they are now filing objections with Companies House against companies with outstanding bounce back loans that are looking to be struck off.
We also asked on what legal basis these objections were being lodged under.
BEIS confirmed that it is filing objections where “a strike off notice has been issued against a company which has an outstanding bounce back loan”.
Now we have official confirmation that dissolutions are being officially objected to - with the consequences we’ve outlined - what can worried directors do?
Bounce back loan repayments are falling due, and the last support measures and protections against creditor actions are being removed within weeks.
All of this adds increased pressure to cash flows that are already squeezed to the limit as they try to manage all the outgoings with reduced income - if they’re able to trade without restriction once again.
If a business is genuinely unable to meet all of its obligations and liabilities including bounce back loan arrears then there is still one legal insolvency process they can follow that would allow them to close their company, settle their debts and move on to the next chapter of their career efficiently and effectively.
Company liquidation, or specifically a creditors voluntary liquidation (CVL), is the best route for a business with outstanding debts including unpaid bounce back loans, to follow.
Once they’ve engaged a licensed insolvency practitioner, they will immediately take over all dealings with creditors and work through the rest of a businesses debts to compile a full picture of who is owed and how much.
Chris Horner, insolvency director with Businessrescueexpert.co.uk, said: “Our FOI inquiry has proven that HMRC are treating improperly dissolved and dissolving companies as their highest priority, which should effectively close off this avenue for directors looking to close down their businesses.
“We can expect to see more compensation orders being used to make directors personally liable for the debts of their struck off businesses if the Insolvency Service believe they’ve been done incorrectly or to evade oversight.
“Another common misunderstanding about bounce back loans is that because they are underpinned by government guarantee, they won’t be chased by lenders. They will.
“The lender will try to secure repayment for at least 12 months as standard as a condition of reimbursement because they will have to show the government they tried to recover the funds they lent.
“They probably won’t start insolvency proceedings just for bounce back loan debt but when restrictions are lifted at the end of September they could use debt collectors and bailiffs to enforce repayment.
“If a business chooses to liquidate instead then the bounce back loan will be treated as any other unsecured debt and if the directors have fulfilled their duties to the best of their abilities, then the lender will ultimately be repaid by the government.
“The most important thing any business having difficulties repaying any debts, including bounce back loans, can do right now is to get professional insolvency advice.
“The rules literally change at the end of September so if they use this time constructively to protect themselves and their business financially and legally, they could already have moved onto their next venture by the time this happens.”
According to statistics released last month as part of a wider FOI release, 156,000 businesses out of 590,000 that took advantage of the VAT deferral offered between 20 March and 30 June 2020 have failed to get in touch with HMRC.
They have not repaid any money owed even though the deadline to either repay in full or arrange a repayment plan passed on 30 June 2021.
The total amount of outstanding tax was £2.7 billion of which 9% was made up of VAT deferrals. Additionally £17.8 billion of VAT has been repaid and another £13 billion is due through agreed monthly instalments.
The VAT Deferral New Payment Scheme was set up to allow businesses to self-serve by spreading their deferred VAT payments by up to 11 equal monthly instalments, interest and penalty free.
An HMRC spokesperson said: “Businesses had up to 30 June to make arrangements to pay deferred VAT, so those who failed to take action should contact HMRC to pay what they owe.
“They may still be eligible to receive support with their tax affairs through our Time to Pay service. These arrangements are agreed purely on a case by case basis and tailored to individual circumstances and liabilities.”
Now, HMRC will begin their efforts to reclaim as much outstanding VAT debt as possible and will make every effort to do so. They have begun by announcing that any business that fails to get in touch to arrange a payment plan for their overdue VAT payments will face penalties of 5% of the money owed plus interest.
The next step usually involves bailiffs and other direct debt enforcement measures.
Chris Horner, Insolvency Director with Businessrescueexpert.co.uk, said: “In our years of experience, we know that HMRC are not happy when businesses ignore their liabilities - whether they’re behind on VAT payments or have bounce back loan debt they can’t repay.
“They have no problem letting their debt management unit loose to enforce and secure debts - especially if the owners or directors haven’t been in touch with them. Even before the pandemic, HMRC was the most tenacious and committed creditor any business could face.
“Now the government has a real vested interest in recovering owed debt - whether it be VAT, outstanding bounce back loans or CBILS borrowing - HMRC will be happy to be seen to be leading the crusade.
“Usually HMRC can be negotiated with if a business approaches them to let them know they will have difficulty making repayments. If HMRC come knocking themselves then time to pay arrangements are more difficult to negotiate and if there are significant liabilities involved then debtor companies should be prepared to face the prospect of court action and subsequent penalties.
“Additionally, HMRC has also recently been granted new powers to make directors and members of businesses personally liable for debts where there’s a risk the business will fold so it’s even more important than ever for business owners or directors to get advice if they are in this position.”
Explainer - What is VAT?
VAT - or Value Added Tax - is paid by any UK business if their taxable turnover exceeds or is expected to rise above £85,000 in any 12 month period.
If a business reaches this threshold then they have to become VAT registered although any business generating less than this can register if they choose to.
VAT registered companies have to submit regular VAT returns so HMRC can estimate how much is owed. Returns can be submitted electronically every quarter unless the company applies for dispensation to file them manually.
It’s important to gain this as filing paper returns without express prior permission incurs an automatic £400 fine.
VAT returns must also be filed within one calendar month and seven days of the end of an accounting period - and the deadline for paying any VAT owed in full falls on the same date.
What are surcharge periods and notices of assessment?
One of the things we take pride in is cutting through jargon and official terms to try and explain - in plain English - what things mean.
With VAT, there are one or two confusing terms that crop up with regularity so we’ll do our best to go through them.
If a business is late or non-compliant in paying VAT by the deadline, or they dont pay in full then their account is said to be in default and they may enter a surcharge period.
This lasts for 12 months and adds penalty charges for future defaults based on a percentage of the outstanding VAT amount owed - although the business is not issued with a penalty for its first VAT default.
If further defaults occur during the surcharge period then the percentage increases with each occasion and the initial 12 month surcharge period will be extended each time it happens.
If a company fails to submit their VAT return on time or pay the amount due then HMRC will send a VAT notice of assessment of tax.
This is a summary of what HMRC believes should be due in VAT.
On receipt of a notice of assessment, a business has a couple of options.
They can send a completed VAT return and pay any owed amount; they can notify HMRC within a 30 day window if they believe the estimate is too low and produce an accurate and corrected VAT return and associated payment.
This is important to get on top of because a company could receive a penalty for willingly paying an assessed amount they know to be lower than it should be.
If the assessed amount is greater than you believe it should be, unfortunately there is no appeal procedure. The business should submit an accurate VAT return and pay the exact amount due.
A business should always submit a quarterly VAT return even if it can’t afford to pay the due VAT. This shows HMRC that they are complying with requirements they can meet and prevents an excessive notice of assessment being issued.
Not being able to pay VAT payments, PAYE arrears, bounce back loan arrears or any other debts when they come due might be a sign of a bigger issue - that the company might be insolvent or might inadvertently be guilty of wrongful trading.
The most important thing to do in this situation is not to panic but to calmly get in touch with us to arrange a free initial consultation.
We will go through your predicament with you in detail to understand what has transpired so far, where the business is and will report back with the options you have quickly.
We have negotiated with HMRC on countless occasions and know that they prefer honesty and transparency.
We do too because this will give you more room to maneuver and chance to turn things around than you might think you have.
Our experience also tells us that the sooner you act, the better it is for everyone.