The Covid-19 pandemic has had a huge economic impact on businesses. Over the last 15 months businesses have had to cope with lockdowns and forced closures which have led to the government providing unprecedented support, such as business loans, tax relief, grants, temporary insolvency measures and the furlough scheme.
Just last month the government extended its temporary insolvency measures to support businesses struggling during the pandemic, including the temporary suspension of statutory demands and winding-up petitions and the temporary removal of the threat of personal liability for wrongful trading from directors until 30 June 2021. More information can be found in our recent blog – click here.
The temporary restrictions and enhanced government financial support have led to insolvency rates remaining significantly below pre-pandemic levels.
Government support initiatives like the furlough scheme will soon begin to wind down and businesses who have taken government backed loans will be expected to pay them back.
It is now important to plan.
Company debts have continued to increase but debt recovery has almost completely shut down during the last 15 months, making the current situation an artificial environment. As we return to a new normality debt recovery will be many businesses’ key priority as a source of much needed cashflow.
Businesses that have taken government backed loans need to be aware that the economic landscape is very different and not the same as it was pre-Covid – there are additional/hidden costs to consider. If you have taken loans, you need to factor them into cashflow.
Doing so helps to both anticipate and avoid “pinch points” especially as competition between working cash flow and debt repayment begin to compete. Thus far, debt repayment has been artificially suppressed both with the extensive Covid funding support packages but also because many of the normal credit control/collection procedures have been knocked back. Clearly this cannot continue indefinitely. Lenders under the Covid funding support programmes will want to see these funds repaid – the Government will want to see the same. As the nation emerges from the pandemic and the emphasis moves from support to recovery, repayment of support monies will gain momentum.
Planning and taking professional advice are vital in positioning any business to meet these fresh challenges. It’s only common sense to recognise how vital, thriving, and prosperous business will be in forming the cornerstone of the economic recovery. It is also clear that most of those businesses will be in the OMB/SME range.
Even if the problems cannot be overcome, it is not the end – restructuring help/assistance is available but timing and planning are still key.
If you are worried about your business’s finances seek professional advice as soon as possible – early intervention is key to survival. Even if you are not worried, talk to your advisors, they may be able to assist anyway.
To discuss any corporate recovery/insolvency/restructuring issues that you may have, please contact Jeremy Oddie or Julie Webster below: