Published: 19/01/2021 By Andrew BaileyThe challenges faced by businesses during 2020 have rolled into 2021 but we will endeavour to try to focus on positives rather than add to the many negative headlines.
A first positive to consider is the Supreme Court’s judgment in the FCA’s business interruption test case which may provide a lifeline for businesses to claim for coronavirus-related business interruption losses. We shall see how this evolves over time and whether many businesses can benefit.
There is no shying away from the difficulties and with this we know it brings stresses for business owners and many sleepless nights. However, if there is a time to refocus on the position it is now whilst protection remains in place for many businesses and with Government support continuing in the meantime. The insolvency statistics demonstrate that these government initiatives have supported many businesses and enabled them to avoid insolvency since the pandemic started.
So what next?
Will there be an avalanche of insolvencies as many predict or will the Government go even further to stop this happening.
We do not know so let’s focus on what we do now and look at the key challenges arising in the next few months.
Winding-Up petitions – 31 March 2021
The protection for businesses from Winding-Up petitions will continue until 31 March 2021.
The Government have advised that this is the “final” extension to the protection. Therefore businesses need to be conscious of this deadline if they have disgruntled creditors. Creditors will be lining up to serve petitions from 1 April 2021 onwards and if a business owner faces the risk of a petition being received after the deadline then they need to plan ahead.
Protection from landlords – 31 March 2021
The protection for businesses form forfeiture of commercial business property has also been extended until 31 March 2021. If the expiry of this deadline is likely to result in difficulties for the business in a similar manner to the Winding-Up petitions it is important to plan ahead. If there is still scope to negotiate with a landlord then now is the time to see if a resolution can be found.
HMRC – Various
Firstly, business owners need to consider whether they can pay their deferred VAT from the June 2020 quarter in full by 31 March 2021. If they cannot then they need to opt in to the VAT deferral new payment scheme when it launches in 2021 and be aware of the deadlines and requirements of the scheme.
Secondly, for those with self-assessment tax to pay and having deferred it from July 2020 then this needs to be paid by 31 January 2021.
Finally, there is no visibility on how HMRC will approach enforcement from 31 March 2021 onwards. As the largest producer of Winding-Up petitions and a significant backlog accrued since early 2020 there will be a lot of focus on how they proceed with pursuing businesses for unpaid debts.
However, what we do know is that they are supportive of Time of Pay proposals if they are documented and realistic. If a business has arrears then it is important to consider how they can be addressed in the future. The sooner you approach HMRC with these proposals the better.
Wrongful trading – 30 April 2021
Without getting all technical, wrongful trading relates to the liability that may arise for a director if they continue to trade when they should have known that the company was insolvent and would not avoid liquidation.
The Government has suspended the risk of wrongful trading until 30 April 2021.
It is important that directors do not consider this an opportunity to act unreasonably despite the circumstances and it is important to remember that directors have fiduciary duties that they need to adhere to and ensure they do not breach.
Government support – March/April 2021
Government support has continued throughout the pandemic but it is worth noting that 31 March 2021 is the final deadline for applications for Bounceback, Coronavirus Business Interruption Loan Scheme (CBILS) and Coronavirus Large Business Interruption Loan Scheme (CLBILS). On 30 April 2021 the Coronavirus Job Retention Scheme (CJRS) ends.
What can be done?
So based upon the above we know we have Q1 of 2021 to evaluate and understand the options. On top of these various deadlines, many businesses will face issues like depleting cash reserves and lack of understanding of what the future holds in terms of financial performance.
- Fully understand the business financials. Speak to your accountant because if it is left until too late in the day you will not be leaving yourself enough time to understand your financial position and, in turn, mean that certain options that could have been available will no longer be there. This includes looking and planning ahead with cashflow preparation;
- Be open with creditors and speak to them about difficulties including HMRC and landlords. If you have arrears and/or potential issues with future payments then start that dialogue of working together to avoid communication issues becoming an issue in due course. Put forward Time to Pay proposals where appropriate;
- If you are unsure about director duties and the steps you are taking then get legal advice. Many solicitors are happy to provide initial advice free of charge in the first instance. Business owners should also keep a record of decisions and the basis for making them. Hold regular meetings of the Board and keep records.
- Understand all your options on how you can preserve the company on a solvent basis but also what could you do in terms of insolvency options. Alternatively contact our insolvency practitioners directly and you can find their contact details on our meet the team page here.