The Twilight Zone was an innovative and groundbreaking TV science fiction and mystery series made in the 1950s and 60s.
It’s been rebooted several times but some of its most famous episodes have been updated and parodied so much that they become part of the general culture.
So much so that the original moral of these stories tends to get washed out and forgotten in the retelling.
One great example of this is the story of “a kind of stopwatch” that was remade as a film called Clockstoppers and as a part of The Simpson’s Treehouse of Horror halloween specials.
Both in the original and in the Simpsons version - a man or Bart and Milhouse acquire a stopwatch with one unusual extra feature - it can be used to stop time itself.
Like previous owners, they misuse the power, it breaks and while they ultimately repair it they remain marooned in time for several years.
The moral is that while it might be nice to stop time, it can’t be done permanently and time eventually moves on and catches up with us.
But what if you could pause time for long enough to give you space to work on ways to improve the financial outlook for your company or that could stop or freeze creditors actions while you arrange advice and assistance so that when they restart, your business would be in a stronger position to engage with them?
An Insolvency Moratorium might be the answer you’ve been looking for.
It allows businesses to have an enclosed legal breathing space away from creditors’ recovery actions like winding up petitions or bailiff visits while a recovery plan is formed.
This will restructure the company's debts and give creditors more chance of ultimately being repaid rather than seeing the company go into liquidation with the increased risk of not receiving repayment.
When first granted, an insolvency moratorium automatically lasts for 20 working days.
This can be subsequently extended for another 20 business days if required with more extensions available for complex cases and only with the consent of creditors themselves.
An insolvency moratorium is different from administration or a creditors voluntary liquidation (CVL) in several ways.
The company directors remain in control of the business and continue to run it on a day to day basis but a monitor is appointed to make sure that all conditions are being adhered to.
Of course the business also has to keep on paying any rent, employment entitlements or any liabilities that come from financial service contracts and the monitor’s fees and expenses - although this is agreed in advance.
What happens when a moratorium ends and time restarts?
Depending on various factors there are several ways an insolvency moratorium can be resolved.
The business raises new funds and investment from shareholders or directors own funds, or it could include a business loan secured with the aim of consolidating existing company debts into manageable payments.
A CVA is arranged with the creditors approval and the business continues trading and making regular monthly payments to creditors in return for being allowed to continue to trade and a proportion of existing debt being wiped.
Preferably after taking professional advice, the directors or business owner reach an informal payment plan with their creditors to begin paying down the debt. Additionally, if tax arrears are owed then a formal Time to Pay arrangement could be reached with HMRC.
Missing repayments for both could have serious consequences so should only be entered into carefully.
Sadly not every business can be saved even with an insolvency moratorium. If the debt and other issues prove to be insurmountable then the moratorium is ended and the business enters administration or liquidation.
“If you knew time as well as I do, you wouldn’t talk about wasting it” - Alice through the looking glass
Rules are changing at the end of September for winding up petitions and several other instruments including the final end of the furlough scheme.
The end of the year is in sight and the remaining weeks and months should be spent trying to regain momentum and build up to the best Christmas trading period for at least two years.
But what if you’re struggling with deciding which repayments to miss or trying to raise enough liquidity to make the minimum costs needed to avoid running up arrears for bounce back loans or other borrowing?
Even before thinking about an insolvency moratorium or other procedure, you should get in touch with us.
We offer a free initial consultation for any director or business owner who needs some impartial, expert advice on what they can do to help get their business back in shape for a hectic end-of-year period.
You could have more options than you think and if you’ve acted quickly, could even start to implement them and see results very soon.
However time will continue to tick by and if you don’t use it wisely then you could still have the same or worse difficulties later but without the time to fix them.
Which not even a magic stopwatch could help you with.
There are still local spikes here and there all over the UK and as we enter the traditional winter flu season, there might be temporary measures deployed if coronavirus cases rise sufficiently.
The government has also declined to implement planned vaccination passports for people attending large events in England so individuals and businesses could now begin to plan their Autumn activities with more certainty.
Against this backdrop it’s been confirmed that the various remaining pandemic support measures including the coronavirus job retention scheme or furlough will definitely end on September 30th along with a lifting of the ban on winding up petitions.
While it was expected that creditors would be able to seek winding up petitions once again, there’s been a sizable catch - so that now bringing a winding up petition is literally a £10,000 question.
New legislation to be introduced in parliament shortly will:
These measures will remain in place until March 31 2022.
Business Minister Lord Callanan said: “The time is right to lift the insolvency restrictions that were needed during the pandemic.
“At the same time, we know many smaller businesses are rebuilding their balance sheets and reserves, and some will need more time to get back on their feet. These new measures and protections will help them to do that.”
The minister said that businesses should pay their contractual rents where they’re able to do so and also confirmed that existing restrictions will remain in place on commercial landlords from pursuing winding up petitions against limited companies to repay commercial rent arrears built up during the pandemic.
Additionally commercial tenants will continue to be protected from eviction until March 31 2022 while a rent arbitration scheme to deal with commercial rent debts accrued during the pandemic is implemented.
One measure not time bound by restrictions are new legal powers given to the Insolvency Service which allow them to retrospectively investigate the conduct of directors of dissolved companies.
If they can prove that directors were dishonest or culpable in behaviour which led to their company’s failure then as well as being made personally liable for any debts incurred, they can be disqualified from acting as a director for up to 15 years.
This includes bounce back loans so obtaining professional advice is critical if you’re thinking of closing your business.
Chris Horner, Insolvency Director with BusinessRescueExpert.co.uk said: “The new £10,000 threshold for winding up petitions sounds like a big increase from the previous minimum level of £750.
"But in reality, due to the associated expense in issuing winding-up petitions, the vast majority of pre-COVID winding-up petitions were over the new level in any event.
“Eager creditors will examine their options carefully and look to use whatever leverage they have.
“Hopefully, many companies use the new 21 day period to negotiate sensible repayment plans. Seek expert help if in doubt about how best to approach this.
“Like the insolvency moratorium that’s automatically granted if a company goes into administration, this provides valuable breathing space and time for a business to come up with plans to deal with problematic debt.
“This includes outstanding bounce back loans or VAT arrears - they haven’t been suspended - and a business can still close down, even if a company has these debts but only if it’s done using the right method overseen by an insolvency professional.
“For example, If a business with unsustainable debt wanted to close and started the process in the next couple of weeks - it could probably be concluded before Christmas, leaving the directors or owners free to begin a new venture or career in 2022.”
Why you should pay to liquidate your business
Time is only an asset if it’s used effectively.
The 21-day negotiation period of winding up petition restrictions and £10,000 floor is only useful if you take advantage and get professional advice now because it will, like all the others, cease eventually.
We offer a free initial consultation to any business owner or director who wants to know the best way to close their company or if possible, restructure and keep it alive, even if it has debts.
Once we get a better understanding of the situation, we can come up with a tailored solution possibly with more options and choices than you thought you had.
But this is only possible if you use your agency and get in touch.
The ones that if solved or removed, would be a launchpad for the success that would likely follow because all the other fundamentals are strong.
It’s a problem video gamers come up against quite often.
They face a seemingly-impossible end of level boss that no matter what strategy they try, they cannot defeat and get past.
Countless hours have been invested and the familiar but rarely sincere “just one more go” has been invoked more than once but the only certainty has been the same negative result.
In the age of Youtube, Twitch, Discord and even gaming performance coaches - there are more ways to find this assistance - amateur and professional - than ever before so they can proceed towards their final goal.
Which brings us back to businesses in the same situation - where’s their solution and video guide to get them past their immediate insurmountable hurdle and help them to literally level up?
The good news is that it’s far easier to find than asking a bigger kid in an arcade to do it for them.
An administrator can be their extra life and give the company the fresh start it’s been reaching for - preserving jobs and giving the business a power up just when it needs it - but it does come with risks.
To clarify, administration is a formal, legal insolvency process that places an external manager - the administrator - temporarily in charge of a business with the aim of turning its fortunes around and saving the company.
This is a serious decision that can have ultimate consequences for a business so should not be entered into lightly or without getting professional advice first to see if it is the most appropriate course of action.
If this is the case then administration is a proven method of helping otherwise viable businesses restructure and regroup before reemerging stronger than before the administrator takes temporary charge.
Another important point to remember is that the administrator represents the interest of the company’s creditors at all times, not the management.
They’re there to make sure creditors can see the best possible return on their expenditure. If that’s through returning the business to profitable trading then they will pursue that option.
If it’s selling the business under a pre-pack arrangement to new management then that will be their chosen course and if the last recourse to secure their money is through liquidating the business and selling the company’s assets off to generate the best return - then they’ll do it.
Once an administrator is officially appointed they will produce a recovery plan which will always be based on repaying as many debts as possible and looking at ways money can be saved in the immediate and short term to reach the goal of saving the company.
They will be aided by an insolvency moratorium applying immediately which halts all creditor actions, giving the administrator time to put their plans together.
Administration is not an open-ended situation that will be allowed to continue permanently.
A creditors meeting must be held within ten weeks of the administration being entered where they will outline their proposals and their recommendations.
Depending on the unique circumstances surrounding the business - its asset portfolio, cash flow and banking situation - they will inform the creditors what the most realistic outcome will be and what the plan is to achieve it.
This may even involve redundancies or other cutbacks in the short term.
Outcomes
An administration can end in several different outcomes depending on the circumstances and future viability:
The moratorium could give the administrator enough time to solve the immediate financial issues through raising extra funds through asset sales, new investment or informal agreements reached with creditors to settle existing debts.
If this happens then it’s mission accomplished - the administrator hands back the business to the directors who will continue to run the company.
Now free of the financial problems that originally burdened the business.
An administration might not be the only insolvency procedure the administrator needs to employ depending on the circumstances.
If the debt is particularly difficult to restructure and is the main obstacle to the business trading profitably in future then they might decide that a company voluntary arrangement (CVA) is the best option to pursue.
Creditors are approached to see if they will accept a regular, monthly payment from the business in return for writing off a proportion of the overall debt.
This will usually be in their interests as they will stand to gain more from the payments than through any other method including asset sales following liquidation.
If agreed, the directors resume control of the business and it resumes trading with the new CVA payment agreement in place.
The business might be made viable once again but it might fare better under new management or owners bringing fresh ideas, energy and investment.
The administrator will market the business for sale immediately and conclude the deal while the business is still protected by the insolvency moratorium.
The existing directors might even be part of the ownership teams depending on circumstances but once the deal is concluded and the new management is in place then the administrator hands back control to this group and exits.
Sadly the debt and problems of the company might be insurmountable for even the best administrator and the only viable way forward will be to close the business down through a creditors voluntary liquidation (CVL) process.
The business is closed down in an orderly fashion and it’s assets and property are sold off with the returns going to pay off creditors in legal order of precedence.
Because the business will already be in administration before the liquidation process begins, most assets will already have been sold prior to this so once a CVL is entered into, the funds can begin to be distributed to creditors.
In the battlefield of giving business owners and directors the chance to fight another day, it’s our call of duty to give them the best advice and support possible.
We don’t claim to have a halo but if you get in touch and arrange a free initial consultation with one of our expert advisors, we’ll let you know which options and strategies would have the best mass effect on your company’s chances of recovery and renewal.
Business life is strange and unpredictable so we’ll help you go through the gears when it comes to implementing any changes you need to. It’s a far cry from leaving you to manage on your own but an essential part of our service.
If it’s time to reboot your approach, do it with a Business Rescue Expert by your side.
Being able to make a real and lasting difference in someone’s life, give them the opportunity to be more self-sufficient, or restore some functionality or normality to their lives would be tremendous.
Charities are one of the sectors that hold society together by meeting demands that the public and private sector can’t or aren’t set up to meet.
But they have to function according to the same rules as other businesses or organisations which means that they must pay their debts when they come due and are just as liable for the consequences as any other organisation if they can’t.
There are options for them depending on their situation which they can take advantage of to rescue or restructure the charity to keep going.
Alternatively, if the situation can’t be reasonably salvaged then there are efficient and effective options to close down and possibly reform without debt.
Regular businesses have management structures or a board of directors in place to oversee their day to day affairs and monitor medium and long term strategy.
In the case of charities, a trustee body will assume this essential duty and look after operations and governance as well as finance.
It might seem boring compared to the more fulfilling and exciting aspects of charity service provision but carefully monitoring the budgets, accounts, projections and financial reports of the enterprise will give important indicators on the overall financial health of the enterprise.
They will be the first warnings of potential insolvency through two key indicators:
There are other practical assessments the trustees can make including a cash flow test and balance sheet test but any of these should indicate potential trouble.
The first thing trustees should do is get professional advice from an insolvency practitioner. Even if they aren’t being threatened with winding up by creditors immediately, they will be able to offer support and ideas on what to do to prevent these threats coming to pass if possible.
If there is an immediate shortfall, the first thing that can be done is an immediate audit to see what costs can be reduced at short notice.
It will take longer but some assets and investments could be realised to provide additional funds or ultimately there could be some reduction of staffing or service provision if it means the charity as a whole can survive.
Further borrowing options could be explored through extending current lending facilities or considering new ones if the situation is considered mainly temporary.
If the situation is more serious and creditors are beginning to demand repayment with legal recourse then the picture is clearer and requires immediate action.
They can consider an administration procedure which automatically gives the charity an insolvency moratorium which halts all action against it - giving valuable breathing space for trustees to work out their next steps.
In an administration, an insolvency practitioner (the administrator) takes over the running of the charity temporarily to see if it can be restructured appropriately and other changes made that will allow it to resume its activities.
Another alternative can be entering into a company voluntary arrangement (CVA) with the charity's creditors.
This would see a proportion of outstanding debt written off with the remainder paid to creditors in a series of regular monthly payments based on the expected cash flow coming into the charity.
Payments must be kept up with to avoid further action but this is an equitable solution to debt problems that could otherwise lead to closure.
If the problems are more manifest and there is no realistic way of returning the organisation back to profitability then the only realistic option would be closing down through liquidation but the method will differ depending on the charity’s structure.
This process is very similar to that of liquidating any other limited company.
Charitable companies limited by guarantee are registered at Companies House and their members determine their aims, objectives and fundraising.
The difference between them and regular limited companies is that any profits are invested in their mission, not distributed among shareholders as dividends.
They can become insolvent like any other business and if they do and have to close then they will either choose to undergo voluntary liquidation or in the worst case scenario, will face compulsory liquidation.
A creditors voluntary liquidation gives trustees more control over the process although a licensed insolvency practitioner will have to oversee the process in either scenario.
Their job is always to protect the interests of creditors by selling off any assets to recoup as much money back as they can. Once this process is completed then the organisation is removed from the charity register at Companies House and it will cease to exist.
Voluntary liquidation and compulsory liquidation are still options for charitable incorporated associations with some minor modifications although this incorporated charity structure isn’t registered at Companies House.
An important point to underline is that members of charitable incorporated associations are usually protected from personal liability for the organisation’s debts.
Unlike other charitable organisations charitable trusts are classed as unincorporated entities.
This means that the trustees overseeing the objectives and charity finances are personally responsible for any debts incurred by the organisation.
In the event of closure, the trust deeds will usually include a procedure for instigating a winding up petition as the most efficient and effective method.
An unincorporated association, by its nature, is not treated as a separate legal entity to its members.
Because of this, if this type of charity becomes insolvent then the members are not protected and could be held personally liable for any outstanding debts incurred.
Also, unincorporated associations cannot make use of any formal liquidation procedures but directors can still get advice and should if they’re in this situation.
The short answer is yes with an important but.
It might be possible for them to operate as a going concern in the short term and avoid a winding up process but the onus is on directors & trustees to ensure that new financing is being sourced or other measures being taken to achieve solvency.
Directors have a duty to ensure any business does not continue to trade if there’s no reasonable hope of recovery - Otherwise the charity could be regarded as wrongful trading with consequences for those directors if proven.
Running a charity might be even harder than managing a similar sized business.
They have to raise sufficient funds to make a profit and pay all their suppliers, staff and creditors on time. Charities have to do this as well as using the funds to run services their users find essential.
So if a charity runs into financial difficulties, and the past 18 months will have affected giving and donations as much as any other sector, it will feel doubly difficult and that users are being let down. Customers can go to other providers but for the users of many charities, this isn’t an option.
The Charity Commission says that in the event of potential charity insolvency, directors and trustees should get immediate advice.
We’ll get a better idea of what your situation is and be able to let you know your options in plain english.
Depending on your charity’s model, we can let you know what you can do and if there are any special circumstances or accommodations that you have to make.
We can then help you implement your decisions quickly and effectively to help you get on with doing the great work your charity has always done.
Specifically because the repayments from this and other Covid-19 support measures are coming due this year - if they haven’t already - and there is some confusion for businesses looking to close down about how seriously or not this outstanding debt is being treated.
A recent example of the confusion is a letter that the Business Secretary Kwasi Kwarteng sent in a letter to business leaders this week.
In the letter, he said that HMRC would take a “cautious approach” with companies that were trying to reopen post lockdown and pay down their debt appropriately.
Specifically replying to concerns raised by R3, the insolvency trade body and the Institute of Directors that urged HMRC to help businesses in danger of becoming insolvent due to a combination of issues including:
Kwarteng wrote that HMRC would “adopt a cautious approach to enforcement of debt owed to government that will have accrued” and said 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.
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.”
This is in contrast to news published by The Insolvency Service in the same week highlighting their success in petitioning courts to wind up five limited companies since this year that had been involved in fraudulent activity involving bounce back loans and CBILS borrowing.
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.”
The new Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill, currently before Parliament, will give the Insolvency Service additional powers to investigate and disqualify directors of companies which fraudulently claimed bounce back loans but were then subsequently dissolved.
The investigative power will be retrospective to look at conduct that took place before the law came into place and if wrongdoing or malpractice is found, the sanctions can include a ban of up to 15 years or even criminal prosecution for serious offences uncovered.
Chris Horner, Insolvency Director with Business Rescue Expert, thinks that while it’s useful for HMRC and the Insolvency Service to remind directors and business owners about their responsibilities, the mixed messaging might cause unnecessary confusion.
He said: “From the conversations we’ve been having within the industry and examples we’ve seen it’s apparent that the Insolvency Service are directly targeting abuse of the bounce back loan scheme, CBILS and furlough fraud as their highest priority this summer.
“They will specifically be looking at businesses with bounce back loans who have tried to use the route of dissolution or striking off to close their business down instead of using a more appropriate liquidation procedure.
“In these circumstances it wouldn’t be surprising to see them seeking compensation orders to make directors personally liable for these debts if they have closed their business incorrectly in the eyes of the Insolvency Service.
“Recovery action on defaulted payments will be pursued for at least 12 months as standard and even though lenders will be repaid under government guarantee for bounce back loans for example, they are still required to continue any recovery action.
“They will probably avoid initiating insolvency proceedings just for bounce back loan debt by itself but will continue with debt collection measures including using debt collectors or bailiffs.
“We can also clarify that any personal guarantees given against bounce back loan debt specifically are unenforceable and these debts cannot be sold on to other collectors. They will remain the responsibility of the original lender to collect.
“Another thing bounce back loan borrowers need to remember is that even if they have obtained a payment holiday from their first repayments, interest continues to accrue during the payment holiday.
“If a business with bounce back loan borrowing is contemplating liquidation, which it can do, it will be treated like any other creditor and should not be paid over and above agreed repayment terms.
“This also includes if the funds are being held as cash in their bank account. They should not use this to repay the lender ahead of other creditors as in the event of insolvency it would be treated as a preferential payment.”
If your business has taken out a bounce back loan or CBILS borrowing in the past 18 months and you’re worried about repayments or if you think your best option is to close your company but don’t know how to deal with these specific debts then get in touch with us today.
We offer a free initial consultation for business owners and directors to discuss their situation and we’ll work with them to come up with the most efficient and effective plan to reach their goals.
As it continues to be a challenging environment for companies and will remain so for the rest of the year and possibly beyond, so taking the time to fix any financial difficulties facing your business right now could be the best time investment you make in 2021.
The government announced that current restrictions on statutory demands and winding up petitions will remain in place for a further three months to protect companies from creditor enforcement action where their debts relate to the pandemic.
The last sentence here is crucial - “where their debts relate to the pandemic”.
There could easily be test cases being brought where creditors argue that the pandemic was immaterial in the case, especially if debts were incurred before March 2020 when the first lockdowns were implemented.
In addition to the ongoing ban on actions, larger suppliers are still unable to cease supplies or ask for additional payments from customers that are undergoing a business rescue process, although small suppliers don’t have to continue to supply companies in insolvency.
Also if a business has been subject to an insolvency procedure in the previous 12 months such as administration or a company voluntary administration (CVA), they will be able to enter an insolvency moratorium with relaxed criteria until the September 30th expiry date.
Lord Callanan, Minister for Corporate Responsibility, said: “We’re extending these important measures to give businesses the extra breathing space they need as we cautiously reopen the economy.
“With the threat of aggressive creditor action and insolvency eased, companies will be able to focus all their efforts on their recovery.”
Why a CVA might be your company’s best defence this Summer
Reaction from retail landlords is understandably negative to the extension of the rent & eviction moratorium until the end of March 2022 pointing out that retailers can pay bonuses and dividends to shareholders, and while they have to start paying business rates again from July, rent can be waived for a further nine months.
By the time it’s due to end the commercial rent moratorium will have been in place for two whole years.
The British Property Federation argues that local authorities will also suffer if unscrupulous businesses exploit the moratoriums and pay no rent.
They estimate that since the restricted measures were brought in, property owners had collectively lost £6 billion in revenue or £1 in every £6 of rent due.
A spokesperson for R3 said: “Many companies across the country will appreciate the action the Government has taken - particularly given the delay to the easing of lockdown announced last week.
“While the extension of these measures will benefit many companies, as time goes on the Government will need to consider the impact on creditors - who have staff and overheads to pay themselves.
“The decision gives directors and business owners a further and possibly final window to plan how they will take their business forward when these temporary measures end.
“We urge them to use this time to seek advice from a qualified professional and to do so as early as possible, so they can benefit from the broadest range of options available and have a greater time period to decide how they will move forward.”
We couldn’t agree more.
Businesses with financial challenges have yet another opportunity to decide what direction they want their company to go in and make concrete decisions right now to give themselves a fighting chance of making it happen.
You could forgive cynical directors who might want to muddle through thinking: “well, this is the fifth last chance so why not wait until the next one?”
Probably because this new deadline coincides with the formal end of the CJRS furlough scheme which would be harder to extend. It will also see thousands of bounce back loans and CBILS borrowers first repayments come due after the first deferral period from earlier this year has ended.
Also three months time will see many thousands more citizens vaccinated and the end of the summer holiday season too.
If you want to improve the odds of your business being around in three, six or a hundred month’s time - get in touch with us today to arrange a free initial consultation.
Then you can really concentrate on pursuing your plans, not frantically consulting the calendar every few weeks for the latest latest deadline.
When the Prime Minister announced that the full lifting of lockdown would be delayed a further four weeks until July 21st, the hopes of hundreds of thousands of restaurants, pubs, nightclubs, takeaways, bistros and many more firms are, once again, hanging by a thread.
The Night Time Industries Association (NTIA) conducted a flash survey of 300 of their member businesses this week in anticipation of disappointing news and found that one in four said that they would not last more than a month without further assistance if restrictions were extended.
Half of respondents said they would have to close permanently if the restrictions went on for longer than that. 54% had already spent over £15,000 in preparation for reopening on June 21st while a small but significant minority, 17.8% had spent over £40,000.
One in five estimate they’ll lose over £40,000 in revenue every week they are restricted or closed while as many as 58% will lose over £10,000 and over a third - 33% - said they will lose 30% of their workforce with a delay.
NTIA Chief Executive Michael Kill said: “Distressed industries cannot continue to be held in limbo, as businesses are left to fall, any decision to delay without clarity on when they can open will leave us no other option but to challenge the Government, standing alongside many other industries who have been locked down or restricted from opening for an extreme length of time, through no fault of their own, and at their own cost.”
NTIA is also campaigning for the government to extend the temporary 5% reduced VAT rate on hospitality, which is due to rise to 12.5% at the end of September.
“These businesses are overburdened with debt, so any decision to delay will make them heavily reliant on the Government to extend financial support and relief, including additional restriction grants, exclusion from furlough contributions, extension of loan repayment holidays for CBILS and bounce back loans as well as business rates and VAT relief for the next 12 months, not forgetting the £2.6 billion in commercial rent debt left unresolved” said Michael Kill.
Pubs and bars are also in the firing line with the British Beer and Pub Association (BBPA) estimating that the delay will cost the industry £400 million collectively.
BBPA Chief Executive Emma McClarkin said: “Every week the current restrictions stay and uncertainty continues, the likelihood of pubs being lost forever increases.
“Our pubs require as a minimum an immediate three-month extension to the business rates holiday, the ability to defer loan payments due now and a further extension of VAT support. Grants for businesses particularly affected, such as those pubs who cannot still reopen because of the current restrictions, must now also be put in place.
The ongoing restrictions combine with the following negative factors to form the following timeline of trouble:-
When you factor in the aggressive approach lenders are beginning to take to recover unpaid bounce back loan and CBILS debts, some with personal guarantees attached for directors, then it looks like it could be a cruel summer for these business owners.
Dr Roger Barker, Director of Policy with the Institute of Directors likened the evolving situation as a “cliff edge” stating that any public health measures must be matched with economic ones.
He said: “Clearly this is a blow for many businesses but particularly those in the retail and hospitality sectors.
“As government support for business ends or begins to taper off, it’s vital that other support is pushed out commensurately with the lockdown extension.”
His fears are shared by other groups including the Federation of Small Businesses (FSB), UKHospitality and the British Chambers of Commerce.
Craig Beaumont of the FSB said: “Businesses in the night time economy have had five quarters of no revenue whatsoever and for everyone else, the chopping and changing makes it impossible to plan and mitigate against the difficulties of restricted trade.”
He also added that the ability to defer VAT is also due to end in June and that “a third of those who deferred their VAT have yet to agree to a repayment plan.”
The British Chambers of Commerce are calling on the government to provide further cash grants at least equivalent to levels provided during the first lockdown and to delay the tapering of furlough payments.
UKHospitality, who estimate their members would collectively lose £3 billion in sales from a one-month delay are lobbying for business rates payments to be postponed until October and for hospitality businesses to receive a rent and debt moratorium until a longer term solution to Covid arrears is found.
The Scottish government has allocated a combined £25 million in the funds for cultural organisations, venues and performing arts organisations to apply to help “prevent insolvency or significant job losses due to the ongoing impact of the Covid-19 pandemic”.
But any business looking for additional support from the Chancellor will be disappointed as the Treasury confirmed that no additional support will be forthcoming to cover the next four weeks.
A spokesperson for the Treasury said: “The furlough scheme is in place until September - we deliberately went long with our support to provide certainty to people and businesses over the summer.
“The number of people on the furlough scheme has already fallen to the lowest level this year, with more than 1 million coming off the scheme in March and April.”
Chris Horner, insolvency director with Business Rescue Expert, thinks that while the news is disappointing for thousands of businesses, now the decision is made they can begin to act with more certainty to secure their futures.
He said: “Even businesses that could fully reopen on July 19th, might not be in a viable position to resume trading with another four weeks of debts building up on top of the previous 16 month’s worth.
“Businesses that gambled on a June 19th reopening will be counting the cost of purchasing supplies and bringing staff back in expectation but now have an additional four weeks to wait.
“The confirmation that winding up petitions and the ban on commercial evictions will both resume on July 1st will also be a blow to many businesses as now action can be taken by creditors to begin to recover outstanding debts.
“Directors and business owners should use this short time before the end of the month to get some professional advice so they can put into place business rescue strategies ahead of these changes taking effect.
“Insolvency moratoriums, administrations and company voluntary arrangements all allow a business to begin the restructuring process with protection from creditors seeking repayment - this could be a crucial first step to saving an otherwise viable business.
“Alternatively, liquidation could be the best solution if debt, including bounce back loans or CBILS loans, is just too high a barrier for the firm to overcome.
“Whatever is the best solution for them - they need to act on it and fast.”
For businesses that need to reopen but can’t - time is running out.
The announcements confirming the extension of the lockdown restrictions coupled with the relaxation of some of the legal protections for businesses means the next two weeks are when critical decisions must be taken for companies in financial distress.
Some might have a pathway back to profitability after a temporary period of restructuring, others might have no option but to close down but they can do it efficiently and solve their outstanding debt issues before being able to reform and begin trading freely as a new company once restrictions allow them to.
They will accurately summarise the options available to them, what they need to do to take advantage and how they can begin to solve their outstanding issues in time to return in Autumn leaner and stronger.
The alternative is the bleak scenarios forecast for businesses since the lockdowns began coming true - and soon.
The majority of revellers and patrons still remember nightclubs as fun and vibrant places to go and dance, hang out, drink and watch the beautiful people.
Working and running a club is at the opposite end of the scale to visiting one however.
Owners have to make sure they’ve got good, trained staff who can handle a busy bar, licensed security staff, enough supplies to meet demand, working lighting and sound systems and a hundred other tasks too mundane to list but essential to ensuring that the clubbing experience is an enjoyable one.
They’ve also got to make sure the club is cleaned up after the last partygoers leave and that any damages are repaired or replaced until they do it all again, probably the very next night.
It takes a special kind of mindset and skill set to successfully operate a nightclub profitably, but the rewards are worth it. Or at least they used to be.
We’ve had the pandemic, endured the year of lockdowns that followed and are still weeks away from nightclubs being allowed to reopen to the public again provisionally from June 21st.
Some clubs with outdoor areas could theoretically open from May 21st but in the UK, the quintessential nightclub experience is indoors.
Every nightclub owner and operator will be looking at how they can operate a covid-safe environment in a location that’s designed to encourage close contact with others, assuming that the appetite for clubbing returns and can command public confidence again.
From being among the first businesses to close to being the last allowed to reopen, it’s been the worst of all worlds for nightclubs and it’s not over yet.
Insolvency Moratorium - a pause button while you decide what to do next
The UK’s night time industry - the collective term for nightclubs, takeaways, bars, restaurants and theatres that operate mainly after dark - generate at least £66 billion for the economy, as much as the airline industry.
Between them, they employ 8% of the country’s workers and support an additional 1.3 million suppliers and freelancers but they were already coming up against some fierce headwinds before anybody had heard of Covid-19.
The economic effects of the pandemic have devastated many clubs and some owners have already taken the decision not to reopen.
Some operators have been able to access some of the various support measures provided by the government including the Coronavirus Job Retention Scheme that allowed them to furlough staff and keep them in their jobs through closure.
Luckier establishments might have been able to secure rent holidays or reductions from landlords while some may have taken out funds through the bounce back loan scheme - although repayments will now be coming due unless they have been deferred.
These will not be the only debts coming due about now. Business rates and utility bills need to be paid regardless of opening status and if the business has built up any VAT or other tax arrears then they will either need to be settled or an arrangement made with HMRC to pay over a longer period.
All the accrued debt has been building, is liable for repayment and the vast majority of nightclubs are still weeks away from being able to reopen and generate funds to begin to repay them.
If you run a nightclub, what options do you have?
If you’re really committed and believe that given time, you can return to profitability, then toughing out these next six weeks is for you.
Though on top of the historical debt, you’ll also have the increased expense of getting everything ready for opening and increased costs in remaining Covid compliant moving forward..
For some, the truth is that it’s often easier to start afresh then try and to climb all the way back to the starting point.
Whether you want to fight for your right to charge customers to party or you think it’s time to close a chapter before beginning another, there are various ways we can help you.
The first step is to get in touch and arrange for some professional insolvency advice.
One of our expert advisors will be able to fully assess your situation and recommend optimal courses of action depending on what you ultimately want to do.
They will run through scenarios with you based on your current and projected figures and be able to tell you what realistic courses of action you have.
If the business is already in debt, has creditors already asking for repayment and is unlikely to be able to make a profit when it could resume trading then a company liquidation might be the easiest and simplest solution.
If the debts are low and the nightclub could be viable once it reopens then an administration or company voluntary arrangement (CVA) might be the best way forward through the current difficulties to a brighter future for everybody concerned.
Choosing to take a decision and resolve the future of your business is key.
By the time nightclubs are allowed to reopen without restrictions, you could already have begun your next venture - but only if you take action now.
If you’re a business owner or director and you can remember a year of trading conditions like the one we’ve just had then you may be one of the unluckiest people in the country.
Not just the external blows of the pandemic and subsequent lockdowns but also the imposed restrictions and closures, the challenge to access the various support schemes and the struggle to keep the business going in the hope of being able to reopen and recover.
In an ideal world, many companies will be able to reopen in April and resume trading successfully straight out of the gate.
But what if this doesn’t happen?
What if you’ve already cut your expenses back to the bone to try and make it through and now you’ve got the opportunity to trade your way back to profitability - it’s just not happening.
Would you be able to make more changes to finally enjoy a recovery or are you looking at a situation that’s impossible to turn around?
How can you identify insolvency problems and find the right solution for you and your business?
We’ll highlight some key signs to look out for and tackle before the issues simply become too big to tackle and insolvency becomes inevitable.
Ready for reopening? Book a Business Viability Review to make sure you’re at peak performance
These include the issuing of statutory demands and winding up petitions and the suspension of termination clauses and directors’ liability for wrongful trading
The key point to bear in mind is that the suspension is not only temporary but finishes within weeks- on June 30th to be precise.
The good news is that if you begin to take action now to identify and address potential issues then you won’t be caught out when restrictions are lifted and creditors are allowed to take action against companies that owe them money again - because they will and quickly.
Regarding insolvency you might hear a lot of complicated words and formulas but the most important one to remember is also the simplest - a business becomes insolvent if it can’t pay its bills and debts when they’re due. That’s it.
So what should you be looking for to give you advance warning that this is where the business is heading?
Personally and professionally, everybody has bad months. Whether it’s down to poor sales, a lack of tight credit control, supply and stock issues - you need to understand whatever is causing cash flow problems and figure out if they are temporary blips or signs of more ingrained issues.
If the business has an overdraft that it’s never out of or it's exhausted all its available avenues of credit then this is a major sign of impending insolvency. Engaging in “ceiling borrowing” - where you borrow money just to stand still and pay wages or regular bills is one of the most reliable indicators.
Borrowing to pay bills can cause difficulties but not paying bills at all certainly will. Non payment of staff wages is a serious red flag. It’s particularly bad if you aren’t paying staff wages on time and in full because you’re squandering their loyalty and goodwill you’ll need to get through these tough times.
Non payment of bills Not paying external bills creates creditors who, once restrictions are lifted, are able to bring various remedial actions against a company including statutory demands for repayment or even winding up petitions for debts as low as £750.
This is a serious threat that has to be treated as such because the next step from here is a court ordering a compulsory liquidation of the business.
Other signs of potential or impending insolvency problems may be individually benign but collectively potentially harmful including high staff turnover, delays in providing company accounts or other financial information, losing regular customers and contracts and even a general downturn in the sector the business operates in.
There’s courses of action available that you can take relatively quickly if you suspect that you’ve got an insolvency problem.
Firstly you can instigate one of two internal tests to definitively prove if the business is insolvent or not.
The first is the cash flow test. This is where the business looks at whether it has enough liquidity to pay staff, suppliers, rent and any other bills on time and still has surplus to purchase supplies and new stock to continue trading.
The focus should be on the short term as if there are immediate problems then this test will uncover them.
The second is referred to as the balance sheet test and is more complicated.
It involves examining the company balance sheet to provide the most recent value of all the businesses’ assets - stock, cash in bank and at hand, debts owed to it, property, vehicles, machinery and digital assets.
These are then set against all known company debts to all creditors including lenders and HMRC, suppliers, employees or others.
If the company’s assets are more valuable than liabilities then it is technically still solvent. If the opposite situation is true then the business is technically insolvent as selling everything it owns would not be sufficient to clear the owed debts.
If you are in any doubt get in touch with us and talk to us about your options moving forward. An option you might not be aware of, for example, is an insolvency moratorium.
This is where an insolvent business is granted a legal period of respite from creditors and other recovery actions while its directors work out potential restructuring and rescue strategies with the guidance of a licenced insolvency practitioner.
The moratorium is an official “breathing space” that allows businesses to focus on their path out of insolvency, if there is one, or what other alternative options are open to them.
We offer a free initial consultation with any business owner or director to discuss the nature of any problems and together we’ll work on a realistic recovery strategy.
2021 could still be the year you overcome your insolvency problems but only if you take action while you still can.
With homeschooling becoming second nature to a lot of us this year, one of the fun things has been rediscovering some of the classic old stories we used to read when we were kids.
Not just the modern tales like Gruffalo and Zog the Dragon, but some of the older ones like The Boy Who Cried Wolf.
The thing that strikes you most in that story is the amazing forbearance of the townspeople who keep running to his rescue several times before the unfortunate end.
It perfectly illustrates that while there are always opportunities to change course, they are finite and eventually one will be the last chance.
So it is with the announcement that the temporary measures brought in by the Corporate Insolvency and Governance (CIG) Act are being extended once again and are now set to expire on June 30th 2021.
These measures include:-
Chris Horner, Insolvency Director with Business Rescue Expert, thinks this is potentially all good news for company directors and owners of businesses that face an uncertain future.
He said: “A lot of small businesses and larger companies will welcome the fact that these protections and support won’t be disappearing in a couple of weeks.
“Crucially it buys them more time to plan and execute their recovery strategy for when the measures do eventually end - which they will eventually.
“We don’t exactly know how the economy will react and function when the restrictions begin to be lifted and physical stores can reopen again so there could very well be a continued depression of activity after external support is withdrawn.
“Getting professional advice and acting on it - making the key decisions that will be best for your business and staff - now will give those companies a valuable head start in the race to reopen.”
Thinking that how things are right now will always be is an easy mistake to make. We’ve probably all mistaken hope for judgement and been taken by surprise.
The extension of these temporary measures once more is both a gift and a warning.
A gift in giving us time and opportunity to start building a recovery plan beginning with a free initial consultation with one of our experienced advisors.
They will learn what circumstances your business is in and help you understand what your options are to revive and hopefully restore your firm’s strength to where it was before we’d even heard of Covid-19.
The warning reminds us that there are always wolves outside and not acting while you have the chance is all the invitation they’d need.
