What are the Options for Businesses Impacted by the Coronavirus Pandemic?

The impact of COVID-19

The Coronavirus pandemic has had a huge impact on businesses around the world, usually to their detriment, and many business owners are now looking at what they need to next. What can be done, or the options available, largely depend on the state of the business and how viable it is.

With this in mind it’s likely that your business is likely to fall into one of three categories:

1. Viable with some help
2. Viable with critical intervention
3. Not viable

Let’s explore some of the options within each of those categories:

 

Viable with some help

These are the options that may be used if the business is viable and needs some informal insolvency procedures, these are usually less costly and less intrusive than formal procedures.

 

Fast-track company rescue plan

Fast-track company rescue plans are used in cases where a company is struggling to pay its day-to-day bills, but with some help could well become profitable again. They are used as a more cost effective solution to a Company Voluntary Arrangement (see below).

In simple terms, all the company debt is moved into one manageable monthly payment so that the company can continue trading whilst making affordable payments to its creditors. And, because it is an informal process, it is usually very quick to set up and get running, as long as their is no serious action being taken by any of the creditors.

 

Debt restructuring – Re-financing

Some businesses seek to restructure their debt when they are facing financial difficulty. A business might restructure several loans so that some are subordinate in priority to other loans. Senior debtholders are paid before the lenders of subordinated debts if the company files for bankruptcy. Creditors are sometimes willing to alter debt terms to avoid potential bankruptcy or default.

The debt restructuring process typically means reducing the interest rates on loans, extending the dates when the company’s liabilities are due to be paid, or both. These steps can improve the firm’s chances of being able to pay back the obligations. Creditors usually understand that they would receive even less should the company be forced into bankruptcy or liquidation.

 

Advisory services

Business Advisers are independent and experienced experts who can offer hands on, practical help, advice and support in specific business areas that will help make a difference to business success.

Advisory services tackle all aspects of business from managing finances, marketing your product or service better and more widely, embarking on research and development activities, to improving your operations.

Business advisory services are provided with the aim to support undertakings identify strengths and overcome weaknesses in specific areas.

If your business is struggling advisers can identify which areas need work first to get things back on track.

 

HMRC Time To Pay arrangement

With a TTP arrangement, you can repay debts to HMRC in monthly instalments, usually over a time frame of twelve months.

However, some Time to Pay arrangements may take longer periods depending on the circumstances facing your business and affordability.

It’s advisable you contact HMRC as soon as you can if you have difficulties paying your tax bill, or you are anticipating that your company may find difficult to meet up with tax obligations in the future.

It is worth noting that this payment will have to be made alongside any new or current payments to HMRC and you should bear this in mind when you’re looking at whether you can afford the plan.

 

 

Viable with critical intervention

These are the options that may be used if the business is viable but needs some formal insolvency procedures, these are usually more costly and intrusive than informal procedures.

 

Restructuring

Restructuring means improving the operational, financial, legal, or other structures of your business to maximise its profit and to ensure efficient operation. For the business restructuring to be effective, it will need the joint efforts of business experts, the company management’s team, and key shareholders.

Restructuring is usually carried out when the company is faced with financial challenges, or during a formal insolvency process such as administration. For example, when entering an Administration, the business is granted a moratorium which gives it space, time, and legal protection during the process of being restructured. The business can continue its operation while carrying out a restructuring process (this is only possible when it is not faced with imminent insolvency or litigation).

However, it is not only a company faced with imminent insolvency that can carry out restructuring. A company might also decide to restructure when there is a need for change. This can be due to financial reasons or macro and micro-economic factors that can change the way a company operates. Examples can include political issues like Brexit or global pandemics like the COVID-19 crisis.

 

Company voluntary arrangement

Company Voluntary Arrangements (CVA) are used in cases where the company is currently in trouble, but has signs of being viable and could well become profitable again; of course, the directors also need to be willing to continue.

In layman’s terms, all the company debt is moved into one manageable monthly payment, so that the company can continue trading without the burden of winding-up petitions or liquidations being threatened. This allows you to move forward with out the pressure.

The conditions of a CVA (the CVA proposal) produces a binding contract for all parties, including all your creditors, to follow, and usually provide lower monthly outgoings for the company, while eliminating danger of legal action being taken while the CVA is active.

The terms will also specify the percentage of the debt that the creditors will be paid back during the period of the CVA.

 

Pre-pack administration

A Pre Pack Administration is an insolvency procedure in which a limited company arranges to sell some or all of its assets to a buyer before appointing an administrator (insolvency practitioner) to facilitate the sale.

The Insolvency Act of 1986 outlines that Insolvency Practitioners (IPs) instructed by companies are obligated to act in the interests of the company’s creditors – so a pre pack administration can only be feasible for your company if this is the case.

IPs are required to consider each option available to the company, including CVAs (Company Voluntary Arrangements), CVLs (Creditor’s Voluntary Liquidations) and refinancing.

If none of these are appropriate in your situation, a Pre Pack Administration is likely to be the best choice for you.

 

Administration

Company administration is an official insolvency process that offers the company protection from creditor legal action, and allows for a rescue plan to be developed and implemented by the appointed insolvency practitioner (IP).

An important aspect of administration is the eight-week moratorium period that starts on entering, which stops any current or planned legal action by creditors.

 

Company restart

By closing your failing business, you can continue to trade within a new business, even possibly beginning the new business with assets of the old, bought for the new business at more affordable costs.

Company Restarts can help overcome start-up failures but they have to be handled in a very specific way in accordance to the legal-boundaries which govern all businesses.

By Trading on within a new company you can;

• retain staff, ensuring the new business has the skills to get going
• release yourself from bad debts
• rid yourself obligation of bad contracts
• retain loyal customers ensuring future income
• retain brand awareness, reduces the costs of ‘start-up’ for the new company

This is of course not a way to simply remove unfavourable conditions, the laws for closure and company formation all still have to be attended to duly.

 

Not viable

These are the options that may be used if the business is  not viable and really needs to be closed to make sure no more debt is built up.

 

Creditors voluntary liquidation

When people refer to liquidation, they more than likely mean a Creditors Voluntary Liquidation (CVL), this may be the best solution if your company is struggling with debt, cash flow problems, or suffering from creditor pressure, and you don’t want to keep it running. The assets and/or funds are sold to pay back creditors what they are owed.

For many businesses’ liquidation is the right solution for their situation. Whatever the cause of your problems, a Creditors Voluntary Liquidation is right if:

• Your business is long term insolvent (can’t pay it’s debts).
• You have no realistic way to repay your creditors.
• You would like to start another company debt free as part of a recovery procedure.
• There are enough assets or cash in the company to be able to fund the liquidation.

If there aren’t enough assets then you may be able to make a redundancy claim from the Redundancy Payments Office which can be used to cover the cost of a liquidation.

 

Administrative dissolution

These are used to close a company when there are no funds or assets to distribute. They can be used whether or not the company has debts but the rules must be adhered too.

 

If you need help

We have seen first hand the devastation the pandemic has had on businesses and we are helping many find a way forward already. If your business has hit difficulty and you’re not sure what you need to do next we can help you explore the options with a free advice session. All you need to do is call us on 0800 975 0380 or email us on [email protected]