Government extends business support measures.

The Government have announced two further extensions of provisions under the Corporate Insolvency & Governance Act 2020.

 

Commercial landlords

The ability to evict or take goods in lieu of rental arrears has been further suspended until 25 March 2022.  The Government have produced a guide for landlords, which includes financial assistance.  The link is:

https://www.gov.uk/government/publications/covid-19-and-renting-guidance-for-landlords-tenants-and-local-authorities/coronavirus-covid-19-guidance-for-landlords-and-tenants

While this provision can be financially damaging to landlords, tenants also need to understand they must continue to pay rent (whether that is the contractual sum or a reduced amount under an agreement with their landlord) otherwise they are simply accruing a debt that could become unmanageable, while simultaneously increasing the landlord’s frustration, meaning they show less understanding once these provisions are lifted.

Further to the above, a director may have given a personal guarantee or, in non-payment of the rentals, could be exposing themselves to potential malpractice action (which carries personal liability) should their company ultimately fall into liquidation.

Debt enforcement

The restrictions on statutory demands and winding up petitions are being extended for a further three months until 30 September 2021.  The Government claim this is, “To protect companies from creditor enforcement action where their debts relate to the pandemic.”

It is, perhaps, interesting the announcement appears to be silent on extending the moratorium over wrongful trading, although directors, in particular, should not hold the misconception suspending wrongful trading provisions protects them if they continue trading beyond a point where creditors suffer.

While being of the view extending the above provisions further is kicking the can down the road, it is understandable.  The COVID road map has been pushed back until 19 July and with furlough to end in the autumn companies will need to re-adjust their overhead expenditure while also getting their business back on track after the adverse impact of lockdown.  Holding off aggressive creditor action to the end of September provides some breathing space for companies to recover before having to deal with aged debt.  Holding off landlords even further allows additional time for business owners to assess the viability of continued trading.

Should you have an insolvency-related issue then please contact me at PBC Business Recovery & Insolvency on (01604) 212150 (Northampton office) or (01234) 834886 (Bedford office). Alternatively, you may send an email to garypettit@pbcbusinessrecovery.co.uk or access our website at www.pbcbusinessrecovery.co.uk

ARE YOU PREPARED FOR ‘NORMAL’ ?

Have you heard the phrase, “You cannot change the past, but you may influence the future?  All too often we blame what has happened rather just accept that it has happened, and we need to address matters going forward.

 

The past 14 months, or so have been arguably the most challenging any of us have experienced but June brings forward two very important dates:

  • Assuming the Government road map stays on course, the 21st is expected to see the end of restrictions and a return to normal life.
  • It is widely believed the (thrice) extended deadline on various interim restrictions and amendments invoked under the Corporate Insolvency & Governance Act (“CIGA”) will end on 30 June.  These include a limitation on serving statutory demands, presenting winding up petitions and landlords taking recovery action for rental arrears.

 

In addition to the CIGA provisions, many businesses will now be receiving notification that repayments of the “Bounce Back” loans are falling due, while the employment furlough scheme is set to end in the autumn.

All the above events will serve to impact on company cash flow, while many will face recovery action from those debtors, frustrated they could not take enforcement action during the CIGA restriction period.  This includes HM Revenue & Customs where enforcement action has been limited to tax evasion and other limited taxation matters.  It is little wonder the Government have extended the restriction period.

Many will be aware of the phrase, “If you fail to plan then plan to fail.”  Unfortunately, all too often, people are great at what they do as a profession, but the accounting/bookkeeping side is seen as a necessary evil.  That may well be the view but if you had a flat tyre, would you carry on driving or stop and do that necessary evil of changing the wheel?

The prediction is UK will endure a short, but sharp economic recession.  As with previous economic challenges, those prepared are generally the ones who survive, so how do you promote the chances of you being one of those survivors?  Here are a few points that I see when assisting companies in financial difficulties:

 

  1. Put together a cash flow forecast (ask your accountant to help if preferred).  When you have this, check actual trading results with the forecast, at least on a monthly basis in order to compare projections with the actual results.

 

  1. Credit control.  Remembering cash is king and a good customer is a paying customer, and your customers are likely to be facing similar post COVID issues as you.  Unpaid debts do not pay the wages!

 

  1. With credit control comes setting and keeping to credit limits.  If you set a credit limit of (say) £5,000 for a customer and an order comes in that exceeds that limit, be bold enough to inform them you cannot entertain that latest order until some of the older invoices are paid.  Yes, some may grumble but your recovery time will improve.

 

  1. Where appropriate, consider negotiating longer debt repayment terms with creditors.  The Government anticipate there should be a lot of forbearance demonstrated by creditors (including HM Revenue & Customs) as, generally speaking and within reason, they would rather recover their debt than find they are on a list of creditors of an insolvency.

 

  1. Avoid the temptation of “Corrective trading.”  What I mean is, for example, do not think hiking your prices will help you recover sales income lost during the COVID restrictions.  While reasonable increases maybe acceptable, pushing that barrier too high will inevitably lose you custom.

 

  1. If in any doubt, seek independent and professional advice, whether that is from your accountant, solicitor, or an insolvency practitioner.  These advisors are there to assist you and steer you in the right direction so use them and use them at an early stage.

 

Should you have an insolvency-related issue then please contact me at PBC Business Recovery & Insolvency on (01604) 212150 (Northampton office) or (01234) 834886 (Bedford office). Alternatively, you may send an email to garypettit@pbcbusinessrecovery.co.uk or access our website at www.pbcbusinessrecovery.co.uk

How are you paid?

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As the heading asks, how are you paid?  Is it a fixed salary, flexible hourly rate or on target earnings, or a combination of these?

In just over 32 years working in the insolvency profession I have been confronted with a wide variety of challenges.  However, the single most challenging task is when informing people, they are being made redundant.  It is my own fear, and I will never get used to being that messenger, even if those unfortunate employees being made redundant is for the greater good of saving a business.

When a company enters into a formal insolvency procedure, in most cases employees are entitled to make a claim for their entitlements against the Redundancy Payments Service (“RPS”).  The one regular surprise (it would appear) is that employee claimants includes directors provided they are able to demonstrate they were also employees at the time.

Generally speaking, the entitlements are wage arrears, accrued/unpaid holiday, redundancy and payment in lieu of notice.  In most cases, these claims are assessed quite easily.  You enter your fixed pay details and what you are owed on the online application.  However, what if you are on flexible hours or your income fluctuates due to commission earnings, so you are unable to insert a definitive earning figure?  This has been an issue for as long as I can remember, and “Best guess” tended to be the answer.  A recent announcement has been made by RPS that should partially address this issue.

With effect from 12 April 2021 employees with variable pay are being asked to calculate their entitlements based upon their 52-week average rate of pay.  I say, “Partially” because no computer system can fully address the large divergence in vocations and some employees could actually lose out.  For example, if you were paid commissions based upon holiday bookings, it is fair to assume earnings have been lower than normal over the past 52 weeks due to the pandemic restrictions.  Conversely, an estate agent may have seen an increase in their earnings due to the suspension of stamp duty enhancing property sales.  The question is, will RPS make an exceptional allowance for the impact of COVID?  I would suggest unlikely.

Should predictions be correct once the Government support programmes end, corporate insolvencies will increase and no doubt, the media will make plenty of noise over the scale of redundancies inherit with corporate failure and restructuring.  This prediction will place RPS under considerable pressure and payment target times will be challenged as a result, exposing those made redundant to a difficult time while they await entitlements.

Should you have an insolvency-related issue then please contact me at PBC Business Recovery & Insolvency on (01604) 212150 (Northampton office) or (01234) 834886 (Bedford office). Alternatively, you may send an email to garypettit@pbcbusinessrecovery.co.uk or access our website at www.pbcbusinessrecovery.co.uk

Are we heading for an economic cliff?

How prepared are you for when the COVID-related financial support and other interim measures fall away? 

With the impact of COVID the Government laid down, what was to become the Corporate Insolvency & Governance Act 2020 (“CIGA”) which became law in June 2020 and had retrospective effect to March 2020.  CIGA was seen as a balancing act between the detrimental impact the severe restrictions would have for trading on one hand against shielding business from depleted cash flow on the other.

In January the House of Lords debated over the continued restrictions on creditor enforcement imposed by CIGA.  These restrictions were intended to expire on 30 September but were extended to 31 December and subsequently 31 March 2021.  In general, the restrictions prevented the service of statutory demands/winding up petitions, landlord enforcement and suspended wrongful trading provisions.  As a result of these restrictions, the latest data suggests an unprecedented level of debt has accrued, including over £4.5 billion in rent arrears.

Furthermore, there is an estimated £70 billion of Government-backed lending, together with deferred tax liabilities, which is most likely going to make HM Revenue & Customs (“HMRC”) a major creditor in most insolvencies, resulting in them having significant influence on the destiny of businesses.  This influence is made all the greater following the upgrading of HMRC to secondary preferential status when formal insolvency is required.

So, what is the good news?

Well, the Government have announced an easing of bounce back loan repayments in an effort to ease cash flow demands.  In addition, recognising the resulting position of HMRC and the detrimental effect COVID has caused generally, the House of Lords have stressed HMRC need to be co-operative and engaging with a supportive approach on proposed COVID-affected corporate restructuring.  Clearly, time will tell on this recommendation and I would say this commercial understanding needs to be wider by including landlords and credit controllers who are all seeking recoveries.

I asked in the title whether we are heading towards an economic cliff.  Personally, I would suggest “Normal” (whatever that is) will not occur over night.  So, rather than a cliff as COVID restrictions ease off, maybe the economy will experience a gradual slope.

Whatever the outcome businesses need to be pro-active.  Review your cash flow and look at ways of reducing overheads, particularly while your turnover gradually starts to return to pre-COVID levels.  You should engage with your creditors and for those who are owed money, a commercial understanding is going to be the order of the day.  If all fails, the advice has to be to seek early advice.  It is no coincidence those who do seek early advice find they have more options available then those who leave it until the last minute.  As a Scout will say, “Be prepared.”

Should you have an insolvency-related issue then please contact me at PBC Business Recovery & Insolvency on (01604) 212150 (Northampton office) or (01234) 834886 (Bedford office). Alternatively, you may send an email to garypettit@pbcbusinessrecovery.co.uk or access our website at www.pbcbusinessrecovery.co.uk

Can you claim business interruption?

Have you suffered financial loss due to the COVID-19 pandemic and the resulting restrictions imposed by Government?

On Friday 15 January 2020 the Supreme Court released their judgment in the case of Financial Conduct Authority -v- Arch Insurance UK) Limited and others where they upheld the lower court decision that COVID-19 was a notifiable disease for business interruption purposes.

Businesses need to check their insurance policies to see if their cover is up to date and includes business interruption. Once satisfied on these points they may begin to consider what (if any) losses the business has suffered as a direct result of COVID-19. Unfortunately, this may have come too late for some businesses who may need insolvency intervention, although the court have made it clear insolvency is not grounds in itself for rejecting a claim as you need to consider the business trend following the effects of the pandemic.

The judgment, itself, goes on for 112 pages so this editorial is merely going to provide a broad overview.

The insurers’ arguments

The principal arguments appear to be:
• COVID-19 was excluded because any loss caused by an occurrence of a notifiable disease is excluded for cover where the disease amounts to an epidemic (“The disease clause”).
• Prevention of access to trading premises was not imposed by law (“The prevention of access clause”).
• Insurers’ are not liable to indemnify policyholders for losses which would have arisen regardless of COVID-19 (“The trend clause”).
• The Orient-Express Hotels decision.

The court interpretation

The disease clause.
The court noted policies will list notifiable diseases but may provide for adding to that list where a new disease emerges that is a threat to public health. The court saw no merit in the insurers’ argument as that would make overall policy wording inconsistent.

The prevention of access.
While the court acknowledged it is for the policyholder to prove their loss as a result of COVID-19, prevention of access to trade premises as a result of local authority intervention was sufficient to trigger claims and did not require a law ordering closure. It was also accepted prevention of using trade premises needed to be in compliance with Government instructions and social distancing rules and not purely on grounds of being a hinderance.

The trend clause.
This was designed to assist in quantifying losses. In dismissing the insurers’ argument, the court said the standard turnover and gross profit derived from previous trading is adjusted only to reflect circumstances which are inextricably linked with the insured peril. It was accepted some of the adjustment when comparing past trading trends should include circumstances unrelated to COVID-19 such as a change in management.

Orient-Express Hotels Ltd -v- Assicurazioni Generale SPA

The insurers appear to place reliance on this case, being the only known reported case on business interruption claims. In short, the hotel was insured in the UK but was based and operated in New Orleans. It was severely damaged by hurricanes Katrina and Rita and claims were made for losses suffered as a result of the damage and damage to the surrounding area (of the city) resulting in a decline of income from reduced visitor numbers. At both the arbitration and arbitration appeal the decision went in favour of the insurers whereby losses resulting from the damage to the hotel applied. The losses caused by the surrounding city damage fell outside of the policy.

The Supreme court disagreed and made it clear, had the matter gone to court it would have over-turned the decision of the arbitrators. In reaching this conclusion the court said business interruption arose because both (a) the hotel was damaged and also (b) the surrounding area of the city was damaged by the same hurricanes so were concurrent causes, each of which was, by itself being sufficient to cause the relevant business interruption but neither of which satisfied the ”But for” test because of the existence of the other.

In short, Prevention to access trading premises as a result of COVID-19 guidelines were concurrent causes for business interruption. You would not have been prevented from access to your trade premises had COVID-19 not arisen, causing the “Stay home” and social distancing instructions.

CONCLUSION

Firstly, it must be placed on record, the insurers involved with this vital test case scheme volunteered to be party to the matter under a framework agreement on 1 June 2020. With over 370,000 potential claims worth in excess of £1.2 billion, it was recognised that both the insurers and the policyholders needed clarity. Indeed, two working groups were also allowed to join the case as interveners.

Putting it bluntly, the insurance companies lost and have been ordered to treat COVID-19 as a notifiable disease for business interruption purposes. Indeed, the court said, “It is hoped that this determination will facilitate prompt settlement of many of the claims and achieve very considerable savings in the time and cost of resolving individual claims.”

Should you have an insolvency-related issue then please contact me at PBC Business Recovery & Insolvency on (01604) 212150 (Northampton office) or (01234) 834886 (Bedford office). Alternatively, you may send an email to garypettit@pbcbusinessrecovery.co.uk or access our website at www.pbcbusinessrecovery.co.uk

The Supreme Court has unanimously dismissed the Insurers’ appeals and allowed all four of the FCA’s appeals

“STOP PRESS”

The Supreme Court has unanimously dismissed the Insurers’ appeals and allowed all four of the FCA’s appeals, which is positive news to policyholders across the country that have suffered business interruption losses as a result of the COVID-19 pandemic.

At first instance the FCA had been successful on many of the issues and now the Supreme Court has found substantially in favour of the FCA on the issues appealed.

The Supreme Court are currently delivering their verdict on this important issue and we will provide further updates as it come through

Any questions please call Gary Pettit on 01604 212150

Covid updates – Extension of temporary restrictions

“The government has announced that the temporary restrictions on winding-up petitions and statutory demands as set out in the Corporate Insolvency and Governance Act 2020 will be extended until 31 March 2021. The extension is made in line with an extension to the restrictions on commercial forfeiture and commercial rent arrears recovery, which have also been extended until to the end of March.

This extension will, no doubt, frustrate landlords or any party who feel normal debt recovery procedures have been exhausted (or of little value) and where commencing winding up proceedings appears to be the only realistic approach for enforcing payment.

 

For those caught up in a financial dispute or debt collection issue it is also further encouragement to consider settlement of any claim by way of mediation, being the principal recognised procedure under Alternative Dispute Resolution.  Should anyone wish to discuss mediation then please contact Gary Pettit at PBC who is a CEDR accredited mediator.“