• ELS Advisory Ltd

Covid 19 - a further business update from ELS

Good evening

Firstly, on a personal level I hope you, your colleagues and family are in good health during these challenging circumstances and that you manage to enjoy your weekend ahead.

ELS Advisory Limited continues to operate without interruption and we are observing government advice to work from home.

We continue to receive updates on a daily basis relative to government support to business owners, the employed and self-employed. Disregarding any political views, the positive is that definitive messages are being given by the government. However, there will always be an imbalance between the benefits some businesses/individuals receive as compared to others. The current position for the self-employed certainly has its limitations.

It was always going to be the case that messages conveyed by government would manifest themselves differently “on the ground”. Further, the timing of commencement of the various ‘schemes’ will only materialise in due course. As a small business owner myself, the key is that we can only influence and take action on those matters that are within our control.

I share some brief thoughts/comments on what I have been exposed to during the last couple of weeks, in advising both non-distressed and distressed businesses:

  • As expected, lender support via the Coronavirus Business Interruption Loan Scheme (CBILS) will be based on assessment of business viability. This has caused frustration amongst business owners, as the support is not manifesting itself as it “said on the tin”. The CBILS loans require personal guarantees to be provided by business owners against loans secured. In the event of future default, the lender would initially pursue those who have provided a personal guarantee. It is only after exhausting this avenue that the lender could then apply to government to recover up to 80% of the outstanding loan. It is welcoming news that lenders wish to ensure business liability. Failure to do so would result in greater financial issues materialising in the future, as non-viable businesses ultimately ceased to trade it would result in lenders (and subsequently the government) writing off significant debts. There is, however, a balance to strike in providing sufficient support to avoid immediate significant business closures, which would lead to economic stagnation;

  • In order to assess business viability, lenders require historic financial information including, most recent management accounts and ordinarily some form of forecasts. It is a good time for business owners to ensure management accounts are up to date. Utilising the support of your existing accountant is sensible. Forecasting is often not undertaken by business owners, especially relative to cash flow forecasting, which will hinder their viability to lend;

  • I am aware that Leeds City Council has an application form via its website. Following completion, there is an indication that grant payments will commence in early April 2020. City of York Council states that the online application form will be available from Tuesday 31 March. For businesses located in other regions, the first port of call should be your local council website. Generally, each council website provides very useful information;

  • The furloughing process is causing confusion. However, the message is clear that furloughing is at management discretion. The government encourage business owners to furlough employees for reasons such as childcare and high risk issues to mitigate the increased risk of spreading COVID 19. The fundamental point is that to take advantage of government support, the ‘effected’ employee must not continue to work. I have been asked by a few individuals whether they will be “found out” if they claim certain employees are not working, when they really are. Disingenuous to say the least and I can merely refer them back to the legal position. No doubt this support will be abused by some;

  • With my insolvency practitioner hat on, our headline advice to already distressed business owners (most of whom have now ceased to trade for a period of time to be determined on how the situation pans out) has been consistent. The aim is to maintain the current status quo and preserve cash as best is possible:

  1. Speak to your lenders and landlord to establish whether a payment holiday can be agreed;

  2. Liaise with HMRC with regard to any existing outstanding debts and seek approval to further defer any existing time to pay agreement;

  3. Ensure returns are submitted to HMRC on time, regardless of ability to pay;

  4. VAT falling due between 20 March and 3‌0‌‌ June 2020 can be deferred until 3‌1‌‌ March 2021. Ensure the DD in place for any payment during this period is cancelled;

  5. Consider any contractual obligations you may not be able to fulfil due to cessation or restricted trade. Inform customers/suppliers and obtain their consent to perform contractual obligations in a refined manner, rather than merely assuming they will be sympathetic to changes. Adhere to any business insurance requirements i.e. if your premises are likely to be empty for more than 30 days notify insurers;

  6. Continue to have dialogue with creditors/customers and follow this up with written/email confirmation of agreed ways of working;

  7. Prioritise payroll costs.

In terms of insolvency procedures and considerations:

  • Further, proposals are being contemplated for temporary changes to UK insolvency law to include:

  1. Allowing businesses breathing space where they have been impacted by COVID19;

  2. To include mitigating factors when considering wrongful trading claims against company directors; and

  3. Potential delays to the statutory demand deadline period and an increase to the minimal debt that has to be owed to issue a statutory demand;

  • Directors should take care in withdrawing cash out of their business, mindful of wrongful trading implications. If insufficient profits are generated to enable distribution to shareholders via dividend, such distributions will likely be classified as directors loans. In the event that a company subsequently entered insolvency such amounts would be repayable by the beneficiaries;

  • Directors must remain mindful of their duties. There are varying ways in which cash constraints can be managed in the current circumstances. Formal insolvency procedures will likely be avoidable the earlier problems are dealt with and identified;

  • If you are a business owner and have concerns do contact us immediately.

Do not hesitate to make contact should we be able to support you, your clients or contacts in any manner. Whilst we cannot physically meet we are only at the end of the phone or can arrange a video/web conference if required.

Best regards and keep safe.

Kevin Brown

Managing Director

ELS Advisory Limited

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