Three month extension to Covid business support and what this means for SMES

By Rik Heap, director, Leonard Curtis Business Solutions Group 

The Corporate Insolvency and Governance Act 2020 (the Act) came into force on 26 June 2020.

It was designed to help businesses in difficulty that needed to restructure, to increase their chances of survival during these turbulent times.

The Act contained several provisions – some were permanent, while some were only temporary but designed to deal with the ever-changing issues that were thrown up by the pandemic.

Given the continuing challenges, these temporary measures have been extended a number of times over the last year, including the much-publicised suspension of liability for Wrongful Trading.

Thankfully, the future is beginning to look more positive – with many millions of adults (both in the UK and globally) being fully vaccinated against Covid and we remain hopeful of a return to some kind of normality with a further relaxation of restrictions in England due on 19 July.

But we are not out of the woods yet and, in order to reflect the current situation, the support measures announced last year are due to change once again.

The key points are as follows:

• The ability of creditors to issue Winding Up Petitions and Statutory Demands continues to be restricted beyond 30 June and has been extended to 30 September 2021 thereby giving further protection from creditor enforcement action
• The extension of these restrictions was announced in tandem with a package of further commercial tenant protections
• The suspension of Wrongful Trading legislation, which has given comfort to directors doing their best to run businesses during hugely uncertain times, has not been extended and will revert to normal after 30 June
• The exemption for small suppliers from the restrictions on terminating supply contracts as a result of the customer’s insolvency (known as “ipso facto” clauses) has also not been extended beyond 30 June

So what does this mean for SMEs?

Well, in simple terms, it is still essentially “as you were” with business owners continuing to benefit from unprecedented levels of support.

There remains significant funding in the system – from CBILS, BBLS (potentially extended via the Pay As You Grow scheme) and now the new Recovery Loan Scheme – which, combined with the inability for creditors to take enforcement action, still gives business owners time, and therefore breathing space, to do something about their situation.

The end of the suspension of Wrongful Trading laws probably doesn’t change much for directors in reality.

Even with the law back to normal, honest directors doing their level best to keep a business going in difficult circumstances would be unlikely to fall foul of the Wrongful Trading rules were their company to subsequently fail.

However, directors always need to be aware of their duties to act in the best interests of all those involved with their companies and those obligations did not change during the pandemic.

Directors who abused their position, recklessly built up debt, or took money they weren’t entitled to, can expect their actions to be heavily scrutinised.

Biggest challenges facing UK businesses

But, notwithstanding the continued “limbo” businesses find themselves in, change is coming – and UK SMEs need to be ready.

Covid loans are now coming due for repayment and the furlough scheme (a godsend to so many businesses) changes from 1 July – with employers being asked to fund an increasing percentage of staff wages over the three months before the scheme is due to end on 30 September.

Unless it is extended again, it will be a game changer and this is probably one of the biggest challenges facing UK businesses as they prepare for a return to normality.

With this in mind, R3 – the Association of Business Recovery Professionals – has recently launched a new resource to provide directors and business owners with a one-stop guide to the options open to them to deal with their corporate financial difficulties.

The guide, Get Back to Business: A guide to dealing with corporate financial distress, is available for free from R3’s Back to Business website, and aims to make it easier for directors to understand their options and take action to stand the best chance of resolving the financial issues facing their firms.

The two key recommendations from the guide are; act early and take advice – wise words indeed.

The sooner any business owner identifies a problem then the more options are likely to be open to them and, the more options available, then the greater the chance of remaining in control and securing a positive outcome.