The Impact of the Coronavirus on Insolvency
Posted: 27/03/2020 14:24
We are currently living and working in unprecedented times with the nationwide lockdown and the financial impact of the Coronavirus still developing.
So much is happening, so quickly, that it is hard to keep up, particularly if you are having to advise clients on the impact of the Coronavirus and the options open to them and their business.
Accordingly, I am going to give a brief overview of a few of the issues in this blog.
Government Backed Loans
When the Government announced that it was going to make business loans available to small and medium sized businesses and back 80% of those loans, that originally sounded like a great idea which would give businesses the support they needed.
However, as with most things, the devil is in the detail!
I am already being approached by clients who are trying to get these loans and banks are requiring personal guarantees for the loans.
A recent client of mine was under the impression that she would be guaranteeing 20% of the loan with the Government picking up the balance of 80%. However this was not so.
The bank was requesting a personal guarantee for the entire loan. Only when the bank had exhausted all recovery possibilities from the company and under the personal guarantee, would it then look to call on the 80% guarantee by the Government.
This does not sound quite as good, does it?
Essentially while it might be easier to get a loan, it is still repayable by the business, and also the directors who have had to personally guarantee it. Accordingly it is clear that it will still be the business and the directors that will be picking up the tab.
It will be interesting to see what happens next. At the time of writing some banks have come out to say that they will not be requiring personal guarantees, and it is hoped that this will put pressure on the others to follow suit.
If they don’t I would imagine that the Government will also begin to put pressure on them, otherwise the package will not have the desired effect.
Winding Up and Bankruptcy Petitions
The Courts have basically taken it upon themselves to adjourn all Winding Up and Bankruptcy Petitions for twelve weeks.
This gives individuals and companies with outstanding petitions a breathing space to try to resolve their financial issues.
However this will extend the hiatus period between the date of issue and any subsequent order.
During this period any transactions are void, and will require a validation order by the Courts for approval, otherwise they could be undone.
Therefore, debtors and directors need to be mindful as to what they do during this extended period.
Emergency Changes in Insolvency Law
New measures are being requested to assist during these extraordinary times.
There has been a request to suspend the Wrongful Trading Law during this period. I covered Wrongful Trading in a previous blog which can be read using the link.
I am not sure how this suspension will work, which in my view raises more questions and greater uncertainty.
For example, given that the majority of companies that this will relate to would have been insolvent prior to the Coronavirus, does this suspension relate to them?
Alternatively, will the change in law basically exclude any losses incurred during the lockdown? If so this will make what is already a difficult and expensive exercise even more so.
The other suggestion which I understand is being considered is to extend the interim moratorium in Administration.
Currently there is a 10 day moratorium in place once a Notice of The Intention to Appoint an Administrator has been filed.
With the lockdown and people working from home it is inevitable that everything is going to take longer, and therefore this suggestion seems entirely sensible.
However, we will just have to wait and see what changes are brought in.
If you or any client needs advice please do not hesitate to contact me on 01326 340579 or by email: firstname.lastname@example.org
In the first instance worrying about and dealing with insolvency will need to take a backseat to safeguarding yourself and your family, but I am always happy to assist as and when needed.