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Locked Down, But Not Out (of the woods, yet)

27.04.2020 Restructuring and Insolvency

Alex Rogan

Alex Rogan Partner

Another lockdown week is behind us. One during which much talk centred on how many more might lie ahead. While an exit strategy has stolen the recent corona limelight, the topic of economic assistance has remained a stalwart.

In a week in which human trials began for an Oxford-developed vaccine and the health secretary confirmed that our country’s COVID-19 outbreak had passed its peak, there was a lot of speculation over an exit strategy from the lockdown. Boris Johnson returns to the helm today to oversee what will no doubt be hot debate on an appropriate exit strategy and the difficult balancing act of protecting public health and the economy.

This Q&A details some of the latest updates on UK government policy response since we published our previous Q&A on 21 April 2020. You can check the latest government guidance for businesses, employers and employees here.

You can also access our extensive guidance here, which addresses the evolving range of legal issues that you may need to consider as we all navigate this unprecedented challenge to keep our businesses trading and ourselves healthy.

What Support Measures for Businesses has the Government Announced or Updated in the Last Fortnight?

Debt

  • New measures to protect UK high street from aggressive rent collection and closure. Government to introduce temporary new measures to safeguard the UK high street against aggressive debt recovery actions during the coronavirus pandemic. Statutory demands and winding up petitions issued to commercial tenants to be temporarily voided and landlords and investors asked to work collaboratively with high street businesses unable to pay their bills during COVID-19 pandemic. - Link

Industry-Specific Support

  • On Monday 20 April 2020, the government confirmed that it would establish a Future Fund scheme for innovative companies, accessible from May 2020. The scheme will issue convertible loans from £125,000 to £5 million to innovative companies that are facing financing difficulties due to the coronavirus outbreak. - Link

What Other New Measures has the Government Announced?

Employment

  • As of 20 April 2020, the Coronavirus Job Retention Scheme is up and running. The package involves the government paying up to 80% of workers’ wages, of up to £2,500 per worker per month, backdated to 1 March. It is to run until the end of June. - Link Helpful Ince Guidance

Government Financing

  • On 23 April 2020, HM Treasury (HMT) announced revision to the UK Debt Management Office’s (DMO) financing remit 2020-21 in light of support measures put in place for UK citizens. Support measures will necessarily increase the government’s financing requirements to those set out in the Budget. HMT outlined a revision to the DMO’s financing remit for 2020-21, covering May to July 2020 inclusive. The DMO also published details of the revised planned gilt issuance schedule for May to July 2020. Planned gilt sales will now total £180 billion over this three-month period based on the government’s assessment of its financing requirements. - Link

The government had previously announced the below measures which we covered in our previous updates.

What Support is the Government Providing to Businesses?

Business Rates

  • Business-rates holiday for retail, hospitality and leisure businesses in England for 2020-21 tax year and grants of £25,000 to businesses in those sectors operating in premises with a rateable value between £15,000 and £51,000. You do not need to do anything; your local authority will inform you if either of these measures apply to you. - Link
  • Business-rates holiday for nurseries in England for the 2020-21 tax year. You do not need to do anything; your local authority will inform you if this measure applies to you. - Link
  • Additional funding for local authorities to provide a £10,000 grant to businesses that get small business rate relief, tapered relief or rural rate relief (around 700,000 businesses could benefit). You do not need to do anything; your local authority will inform you if this measure applies to you. - Link

Consumer Debt

  • The FCA has announced a proposed package of measures to support consumers facing difficulties due to coronavirus. Proposed measures cover a possible 3-month payment freeze on motor finance repayments and a possible 1-month interest free payment freeze on high cost credit agreements. - Link
  • Myriad temporary measures to support users of consumer credit products unveiled by the FCA. These measures include ensuring that up to £500 on already-arranged overdrafts on personal current accounts is provided at 0% interest for up to three months, and payment freezes on credit cards and personal loans at a reasonable rate of interest. These measures are in force. - Link

Debt Financing

  • On 15 April 2020, the FCA published a “Dear CEO” letter sent to the leaders of UK banks on lending to SMEs during the pandemic, focusing on the need for banks to provide support to SMEs through Coronavirus Business Interruption Loan Schemes. - Link
  • Government-backed lending facility for large companies to cope with short-term cash-flow issues. The Bank of England’s Covid Corporate Financing Facility is administered through banks and will see the Facility purchase short-term commercial paper to the value of at least £1 million from companies that make a ‘material contribution’ to the UK economy and that were in good financial health prior to the economic shock. The scheme is now available. - Link
  • Amendments to the Coronavirus Business Interruption Loan Scheme administered through the British Business Bank in order to relax the security requirements and increase access to the scheme’s funds. The scheme supports businesses with an annual turnover of under £45 million in eligible sectors with an 80%-government-backed loan of up to £5,000,000. It has no lending charge and the government will cover the first twelve months of interest. The scheme is available and is administered through participating banks. - Link & Helpful Ince Guidance
  • Coronavirus Large Business Interruption Loan Scheme to support UK-based businesses (subject to some sectoral restrictions) with an annual turnover of £45 million to £500 million through an 80%-government-backed loan, at a commercial rate of interest, of up to £25,000,000. Numerous products will be available through the scheme including short-term loans, overdrafts, and invoice and asset finance, and the scheme will target companies unable to secure regular commercial financing. The scheme is expected to be administered through participating banks and will launch later this month. - Link
  • PRA guidance to banks to consider waiving covenant breaches caused by Covid-19-related issues and to do so in good faith and to not impose new charges or restrictions on customers following a covenant breach that are unrelated to the facts and circumstances leading to the breach.  - Link

Employment

  • If your business had up to 250 employees on 28 February 2020, you may be able to reclaim up to 2 weeks of statutory sick pay and expenditure per eligible employee who has been off work due to Covid-19 (including in self isolation). The repayment mechanism is to be set up over the coming months. Furthermore, Section 40(1) Coronavirus Act 2020 has also facilitated the disapplication of Section 155(1) Social Security Contributions and Benefits Act 1992 in order that statutory sick pay is available from the first day of absence. - Link

Equity Financing

  • Package of measures from the FCA to assist companies in raising new share capital. Measures include recommending investors support issuances by companies of up to 20% of share capital, and making available dispensations from some of the requirements to hold general meetings under the Listing Rules. These measures are in force until further notice. - Link

Industry-Specific Support

  • Numerous relaxations of regulations for the medical sector including in relation to clinical trials, inspections, medical devices and medicines. - Link
  • £300m in advanced funding for pharmacies to support provision of essential services. Part of the funding has been paid already and part will be paid on 01.05.20. The advance will be reconciled later in the financial year. - Link
  • £397m of funding for bus service operators to keep wheels turning. Existing funding will be paid in full despite reductions in service levels, new funding is being made available over the next three months through the Covid-19 Bus Services Support Grant (with conditions attached concerning service levels), and extra funding previously earmarked for starting new services is being reallocated for distribution by local authorities to existing providers. - Link
  • Grants of up to £50,000 for technology companies who develop projects that demonstrate significant benefits to society or an industry that has been severely impacted or permanently disrupted by the pandemic. The funding is available through a competition to which entry closes on 17/04/20. - Link

Insolvency

  • Moratorium on debt enforcement and a new restructuring plan permitting ‘cross-class cram-down’. Legislation is set to be introduced soon. - Link & Helpful Ince Guidance
  • Suspension of wrongful trading provisions of the Insolvency Act 1986 to make it easier for directors to keep trading without the threat of personal liability should the company fall into insolvency. - Link & Helpful Ince Guidance

Governance & Regulatory

  • Announcement by the Bank of England’s PRA of relaxation of submission deadlines for harmonised and PRA-owned regulatory reporting in relation to certain documents. - Link
  • The PRA has told banks to use their liquidity and capital buffers to back customers during the Covid-19 crisis, after requiring lenders to cancel dividends to bolster their finances. Find a Q&A released today here. - Link
  • Annual general meetings to be allowed to be held online or postponed. Legislation is set to be introduced soon. - Link
  • Two-week moratorium on preliminary financial statements announced by the FCA in order that listed companies (except those on the AIM) have time to give due consideration to events before making disclosures. - Link
  • Three-month extension period to time to file accounts with Companies House. Companies will need to apply through an online system citing Covid-19 as the reason for needing an extension. - Link
  • Extra two months to publish audited annual financial reports, giving firms six months from the end of the financial year in which to do so instead of four. - Link
  • FCA and PRA dual-regulated firms given permission to allocate senior management functions to an interim senior manager who is unapproved by the FCA and PRA. - Link
  • Supervisory flexibility from the FCA on matters including anti money laundering, best execution and depreciation notifications. The FCA has written the following letter to CEOs of firms providing services to retail investors. - Link

Operational

  • Support for businesses trading internationally including a Department of International Trade dedicated email address for Covid-19-related queries and information on access to existing UK Export Finance support. - Link
  • Relaxation of limits on driving hours and daily rest requirements for all businesses until 21.04.20. The government has introduced this measure pursuant to pursuant to Article 14(2) of Regulation (EC) No 561/2006. - Link
  • Relaxation of planning regulations to allow pubs and restaurants to provide takeaways without a planning application. This measure is set to be implemented by legislation soon. Businesses will need to inform their local authority of the beginning and end of their use of the measure. - Link & Helpful Ince Guidance

Property

  • Ban on forfeiture of commercial tenancies for a period of more than three months, including in relation to forfeiture proceedings already underway in the High Court. This measure is implemented through Section 82 of the Coronavirus Act 2020. - Link & Helpful Ince Guidance

Tax

  • Businesses in financial distress and with outstanding tax liabilities may be eligible for support through HMRC’s ‘Time to Pay’ service, which gives extra time to pay tax in instalments agreed on a case-by-case basis. The scheme is now available and HMRC have set up a coronavirus helpline - Link
  • Deferring VAT payments for three months from 20.03.20 to 30.06.20. This scheme is automatically in place for all businesses and you do not need to make an application. - Link

What Support is the Government Providing to the Self Employed?

  • Government to cover 80% of monthly profits, derived from an average of monthly profits over the last three financial years, up to a limit of £2,500, for an initial period of three months. This support is available for self-employed people that had trading profits of less than £50,000 in 2018-19 or an average trading profit of less than £50,000 over the last three financial years and who submitted a self-assessment tax return for 2019. Those who pay themselves a salary and dividends through their own company are eligible for the Coronavirus Job Retention Scheme but not for this scheme. This scheme will be accessible before June. - Link
  • Self-employed people in financial distress and with outstanding tax liabilities may be eligible for support through HMRC’s ‘Time to Pay’ service, which gives extra time to pay tax in instalments agreed on a case-by-case basis. - Link
  • Deferring income-tax payments so that payments due on 31.07.20 are now due on 31.01.21. This scheme is automatically in place for all self-employed taxpayers and you do not need to make an application. - Link
  • Deferral of self-assessment payments due on 31.07.20 until 31.01.21 without interest or penalties. No application is required. - Link

What Other Support is the Government Providing?

Apprenticeships

  • Relaxation of rules on apprenticeships including modifying assessment arrangements and permitting breaks in learning where businesses are disrupted for over four weeks. - Link

Employees

  • Legislative changes to allow employees to carry over four weeks of annual leave into the next two leave years where it is not reasonably practical to take some or all of the leave entitlement due to Covid-19. Legislation implementing this change is now in force. - Link

Property

  • Three-month mortgage holiday for those affected by the virus, including for buy-to-let landlords whose tenants cannot pay rent. This holiday will not affect borrowers’ credit ratings but is not automatic and each bank will have to approve each application through a fast-tracked process. This measure is available now and administered through banks.
  • Increased notice period requirement of three months for new residential tenancy evictions. This measure is implemented through Section 81 and Schedule 29 of the Coronavirus Act 2020. -Link

Motoring

  • 6-month extension of MOT expiry date for vehicles with an MOT expiring on or after 30.03.20. This measure applies automatically and you do not need to do anything apart from ensure your vehicle is safe to drive. - Link

Please make use of our extensive guidance here, which addresses the growing range of legal issues that you and your business may face. We stand ready to support you and your business through the Covid-19 crisis. Please contact us and we can help you navigate these challenging times. 

Article authors:

Alex Rogan