An update on the withdrawal of COVID-19 business support measures

In this article, Lianne Fraser gives an update on some of the government’s business support initiatives introduced during the COVID-19 pandemic which are in the process of being withdrawn. 

Wrongful trading risk to directors from 1 July 2021

Wrongful trading provisions, where directors can be found personally liable for an increase in creditors between the point they ought to have known that the business was insolvent and the business being placed into Liquidation or Administration, were temporarily suspended until 30 June 2021.  The normal wrongful trading provisions have now resumed.

This means that leading up to any insolvency, directors need to be careful that they do not worsen the creditor position or they may be found personally liable.

Suspension of creditor winding-up petitions until 30 September 2021

Restrictions on statutory demands and winding-up petitions have been extended until 30 September 2021 – this means that from 1 October 2021 creditors will be able to commence winding up action against companies. 

For a winding-up petition to be successful, the creditor must prove to the court that the company cannot pay its debts.  A charge for payment is one way to do this.  Any company that has an expired statutory demand or a CCJ is facing a real risk of being wound up and placed into insolvent liquidation from 1 October 2021.

End of furlough on 30 September 2021

The Coronavirus Job Retention Scheme (CJRS) has been extended until 30 September 2021 but is being wound down.  The CJRS support was reduced to 70% of wages from July further reducing to 60% from August with employers topping up wages to at least 80%. 

When the CJRS ends on 30 September, businesses will need to ensure that the revenue being generated is sufficient to pay wages in full.  If not, redundancies may need to be made requiring a lump sum payment which the business may not have.  If the business does not have enough cash for this an insolvency process may be necessary. Once an Insolvency Practitioner is in-office employees will be paid any outstanding entitlements by the Government.

Settlement of deferred VAT payments

Businesses that deferred VAT payments due between 20 March 2020 and 30 June 2020 that were not able to pay in full by 31 March 2021 could either join the online VAT deferral new payment scheme by 21 June 2021 to spread payments of deferred VAT over smaller, interest free instalments or contact HM Revenue & Customs (HMRC) to make an arrangement to pay by 30 June 2021.

Businesses that have not contacted HMRC to make the relevant arrangements may be charged interest or a penalty by HMRC and should be considering how they will make payment of monies outstanding.

Repayment of Bounce Back Loans

Under the Bounce Back Loan Scheme (BBLS) a business could obtain a loan for an amount of £2,000 up to £50,000 with a 100% government guarantee against the outstanding balance of the facility (capital and interest).  BBLS closed for new applications on 31 March 2021.

The borrower is 100% liable for loan and interest repayments but the government will cover interest payable to the lender for the first 12 months.

Pay as You Grow measures were introduced which give borrowers the flexibility to extend the loan term up to 10 years at the same fixed interest rate, make interest-only payments for 6 months (with the option to use this up to 3 times throughout the loan term) or request a 6-month repayment holiday once during the loan term.

Early repayment of the loan can be made at any stage without any early repayment fees.

Using Pay As You Grow should not in principle affect a business’s ability to obtain finance in the future and will not affect its credit rating, but it may affect future creditworthiness assessments by lenders.

Businesses should monitor their initial and ongoing repayments, the affordability of the loan and consider whether any Pay As You Grow options are required.

Coronavirus Business Interruption Loan Scheme (CBILS)

Under CBILS a loan of up to £5 million could be provided initially on a 6 year term with the possibility to extend this up to 10 years at the lender’s discretion.  CBILS closed for new applications on 31 March 2021.

The borrower is 100% liable for loan and interest repayments but the government will cover interest payable to the lender for the first 12 months.

Debt repayment holidays or payment deferrals will be at the discretion of the lender.

Businesses should monitor initial and ongoing repayments, the affordability of the loan and consider any impact debt repayment holidays or payment deferrals may have if further finance is required in the future.

It is important that any stressed or distressed business takes early professional advice from an Insolvency Practitioner to discuss the options available.

Get in touch

Shona Campbell

Shona Campbell

I head up the Business Recovery and Insolvency team at Henderson Loggie and have over twenty years of experience advising businesses, the majority of that time dealing with businesses facing some form of financial difficulty….
Margaret Linn

Margaret Linn

I have 25 years’ experience working in Insolvency, both personal and corporate.  I advise individuals and company directors who find themselves in financial difficulty and am committed to finding a tailored solution that serves the…
Lianne Fraser

Lianne Fraser

I am an ACCA qualified Assistant Manager in the Business Recovery & Insolvency team and joined Henderson Loggie in 2020.  I have 9 years’ experience in the administration of corporate insolvencies (Administrations, Court and Creditors’…