Companies can’t be wound up until the end of March
In a widely expected announcement, on 9 December 2020, the government confirmed that it intends to extend the ban on winding up petitions presented against companies due to COVID-19 related circumstances until 31 March 2021.
The government also extended the prohibition on landlords evicting tenants due to Covid related arrears until 31 March 2021. The government had previously reinstated the temporary removal of the threat of personal liability for wrongful trading until 30 April 2021.
These measures were widely expected in the restructuring community following the extension of furlough until 31 March 2021 and given the further tiered restrictions put in place by the government which continue to impact businesses and communities across the UK. The commentary around the measures being extended suggest that the these are the final extensions which will be granted. This is important because creditors (and particularly landlords) being unable to enforce their rights when they are not being paid is harsh.
These measures, together with the financial relief which the government has provided to companies is clearly having an impact. The number of formal insolvencies which have taken place in recent months are far below the normal level of insolvencies which take place in the UK every year. Whether it is the moratorium on winding up petitions or the additional funding which is having more impact it is difficult to know but the pressure on businesses is expected to increase in the early part of 2021 when the seasonal sales peak has passed and the accrued liabilities which companies have built up surviving the coronavirus crisis start to have to be repaid.
Our advice throughout the crisis has been to encourage business owners to cast an eye into the future and make sure that they have thought through the cash flow implications of trading in 2021. The number of variables which can impact a business are significant and it is difficult to visualise how cash flow will really work in practice without some sort of financial model.
A financial model also allows the business owner to “play around with the numbers” and see what impact various changes to the structure of the business could have on cash flow.
We always encourage business owners to take early steps to have informal conversations with their accountant or restructuring expert if they see a bumpy time ahead. An early conversation can open up options which may otherwise not be considered and can be incredibly reassuring.
If you would like to discuss the topics explored in this article, contact Andrew Tate.
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