Updated as at 28 April 2020

Each day brings fresh challenges as a consequence of the COVID-19 pandemic, giving rise to understandable anxiety among businesses and wider society. However, there have been welcome announcements from the UK Government and Scottish Government in terms of the support they are providing to those facing or bracing for insolvency in order to mitigate financial liabilities. Details of some of these measures are set out below and we would encourage businesses to identify as many viable options as is possible in early course:

1. Insolvency reforms are anticipated imminently that will undoubtedly provide breathing space and further comfort to businesses affected by the COVID-19 pandemic. In particular, the UK Government has indicated the reforms will:

  • temporarily suspend wrongful trading for a three month period commencing 1 March 2020;
  • introduce a moratorium for companies to prevent certain enforcement action being taken and assist with rescue and restructure strategies;
  • introduce a new restructuring plan process; and
  • amend the essential supply provisions contained within the Insolvency Act 1986 to ensure continuity of supply.

It is clear that the wider implications and consequences of the COVID-19 pandemic continue to be taken under consideration, and further measures are due to be introduced to further support the retail sector and protect the UK high street.

2. HMRC has issued insolvency guidance for the purposes of providing support to:

  • insolvency practitioners, individuals and businesses that are subject to an existing voluntary arrangement, where COVID-19 has an impact on the ability of the parties to make contributions or meet the post-arrangement tax liabilities. This support includes  a three-month break in contributions being made to HMRC; and
  • debtors by pausing the majority of insolvency activity for a period of time. In particular, HMRC will not petition for bankruptcy or winding up unless deemed by HMRC to be essential (for example due to fraud or criminal activity).

Further details can be found here.

3. The Bank of England has announced an emergency cut to interest rates, lowering the base rate to 0.1%.

4. The Coronavirus Job Retention Scheme will enable businesses to retain staff at least until the end of June (extended from end of May), during which they will be able to recoup 80% of their employment costs up to a maximum sum of £2,500 per month per employee. This will require the status of employees to be altered to being a furloughed worker.

5. 100% relief from business rates has been announced for the tax year 2020/2021 for various different categories of business including:

  • retail, hospitality and leisure sector businesses with occupied properties; and
  • nurseries (this is new for England – since April 2018, nurseries in Scotland have been entitled to 100% relief); and
  • Scottish airports and relevant handling services at Scottish airports.

In England, there is no action required because the rates will be applied to the relevant Council Tax bill. In Scotland, we do not expect there to be any change in process for obtaining relief.

6. In addition to the above, the Scottish Government has announced a 1.6% relief on non-domestic rates for the year 2020/2021, effectively reversing the poundage change for that year. This will be applied automatically to bills going forward.

7. A grant of £10,000 will be available to small businesses that pay little or no business rates in respect of occupied properties, including:

  • England – those who would ordinarily be entitled to Small Business Rate Relief, Rural Rate Relief and Tapered Relief.
  • Scotland – a small business support grant for those who would be entitled to Small Business Bonus Scheme Relief and Rural Relief. It is also available to a business which is eligible for Small Business Bonus Scheme Relief but which is in receipt of Nursery Relief (see point 5 above), Disabled Relief, Business Growth Accelerator Relief, Discretionary Sports Relief, Enterprise Areas Relief or Fresh Start. A 100% grant is available on the first property and, from 5 May 2020, a grant at 75% will  be available for each subsequent property.

8. There are also cash grants available for businesses in the retail, hospitality and leisure sector with occupied properties. There are some nuances in the Scottish position:

  • England – a grant of up to £25,000 per property is available depending on the rateable value. Where the rateable value is under £15,000, the grant entitlement is £10,000. A rateable value of £15,001 - £51,000 gives rise to a grant entitlement of £25,000. The relevant local authority will write to eligible businesses.
  • Scotland – a one-off grant of £25,000 will be available for businesses with a rateable value of £18,000 - £50,999. The application can be made from 24 March 2020 and will be available until 31 March 2021. A list of those businesses that are eligible and ineligible is available here. From 5 May 2020, further grants at 75% may be available for each additional eligible property; and
    – the small business support grant referred to at 7 above may also be payable where a business is not eligible for the Small Business Bonus Scheme Relief but does have multiple properties where the rateable value of each property is less than £18,000 and the combined rateable value of all of the properties is between £35,001 and £51,000.

9. VAT payments will automatically be deferred for the three-month period from 20 March 2020 to 30 June 2020. The relevant business will have until the end of the 2020/2021 tax year to pay the deferred tax liability. VAT refunds and reclaims will continue as normal.

10. New measures for the self-employed have been introduced including:

  1. a coronavirus self-employment income support scheme;
  2. a new £100 million fund in Scotland to assist the newly self-employed and viable micro and SME businesses suffering distress due to the pandemic; and
  3. automatic deferral of income tax payments for self-employed from 31 July 2020 to 31 January 2021.

11. HMRC is also scaling up its Time to Pay arrangements for those with outstanding tax liabilities who are facing temporary financial distress during this period. There is a dedicated telephone line available to contact HMRC for such arrangements: 0800 0159 559.

12. SME businesses and employers with fewer than 250 employees as at 28 February 2020 will be entitled to reclaim Statutory Sick Pay paid to employees. Details of the rebate scheme to claim repayment are awaited.

13. The Coronavirus Business Interruption Loan Scheme (CBILS) has been introduced (and further extended) by the British Business Bank, which loans will be available through a variety of lenders with the lending being 80% government backed. This funding can be accessed by:

  • SMEs and other businesses with a turnover of less than £45 million to provide access to finance of up to £5 million. Importantly, there will be no personal guarantees required for debt less than £250k and where the debt is over £250k the guarantee is to be limited to 20% of the outstanding balance. Insufficient security cover is no longer an eligibility requirement; and
  • businesses with a turnover of between £45 million and £500 million who are unable to secure regular commercial financing. Lending of up to £25 million is available to businesses with a turnover of between £45 million and £250 million. Lending of up to £50 million is available to businesses with a turnover of more than £250 million.

14. A new ‘bounce back’ loan scheme has been announced to provide access to finance to smaller businesses. Funding of up to £50,000 or 25% of turnover will be made available and will be 100% backed by the UK Government, with the UK Government also paying the interest for the first 12 months. It is hoped that the funds will be available within 24 hours of approval. It is understood the application process will involve a standardised form with simple eligibility criteria and no requirement for forward-looking tests of business viability. Applications can be made from 4 May 2020.

15. The Bank of England is also making available a financing facility known as the Covid Corporate Finance Facility (CCFF) whereby it will purchase short-term debt (with a maturity date of up to one year) in the form of “commercial paper” from larger firms to support liquidity. The CCFF is aimed at non-financial companies that make a material contribution to the economy and satisfy the Bank of England’s eligibility criteria. A key requirement is that the business was in sound financial health prior to the COVID-19 outbreak, meaning a short or long-term rating of investment grade, as at 1 March 2020, or equivalent. Further details of what is meant by “commercial paper” and the eligibility criteria can be found here and further information on participating lenders is available on the UK Finance website.

16. It may well be possible to make an insurance claim as guidance has been issued that suggests those businesses, including those in the hospitality and leisure sector affected by COVID-19 crisis/lockdown, may be able to make a claim (subject to the wider policy conditions being met/complied with). It is therefore worthwhile to continue to review the policies you have in place and engage with your insurers accordingly.

17. If insolvency does occur, the Crown preference provisions giving HMRC an elevated position as a preference creditor will now be delayed from 6 April 2020 and will apply to insolvencies from 1 December 2020 (see our previous note regarding the nature of the preference being given). However, the prescribed part available to unsecured creditors in insolvency has increased from £600,000 to £800,000 in relation to insolvencies with floating charges created on or after 6 April 2020.

18. On 25 March 2020, the First Minister announced further support in relation to bus companies that have reported a significant drop in concessionary travel. Since then, further grants and funding options have been announced by the Scottish Government in relation to creative industries, the third sector, seafood fishing and processing industries, coastal businesses and third sector organisations.

Allana Sweeney is a Senior Associate in Shepherd and Wedderburn’s restructuring and business advisory team. For more information, contact Allana on 0141-566 7215 or at allana.sweeney@shepwedd.com.

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