The current Covid 19 outbreak across the world is no doubt going to put a struggle on the cash flow of a lot of businesses, no matter what sector they operate in.  As cash becomes tighter, as a business owner, you may find that you are unable to make payments in full to your creditors.  You will not be alone in these unprecedented time.

Communication with your creditors is key at such times to avoid formal action being taken against the business by its creditors.  We would recommend that you contact creditors as soon as you become aware of the fact that you are not in a position to make the required payments.

It is important to first be aware of the measures that have been put in place by the government to assist businesses who are feeling the impact of the current pandemic.  In this year’s budget, the Chancellor revealed he had allocated up to 2,000 experienced call handlers to a specialist helpline about its time to pay service in response to the current crisis. HMRC have issued guidelines stating that if you cannot pay tax because of the Coronavirus you should call 0800 015 9559 – click on the following link.

Additionally, in his statement on Friday 20 March, the Chancellor announced amongst other things that he would defer the next VAT quarter until the end of 20/21 financial year. Finally, amongst the other package of measures announced by the government is a 12 month business rates holiday for all retail, hospitality and leisure businesses in England

If the above  assistance is not sufficient for your business or you are still experiencing problems, it is possible to reach an informal “time to pay” arrangement with your creditors which would give the business more time in which to make payment of an outstanding invoice or change the terms upon which the payments are due.  We would recommend that any agreement is set out in writing to avoid any issues arising at a later date.

It may not possible to reach an informal arrangement with all creditors but this does not mean that nothing further can be done.  There is the option of putting a formal proposal to your creditors by way of a company voluntary arrangement (CVA).

A CVA is a formal insolvency procedure supervised by a licensed insolvency practitioner and governed by the Insolvency Act 1986.  Under the terms of the CVA, ordinarily you will propose to pay a percentage of the debts that are due to your unsecured creditors over a number of years.

The appointed insolvency practitioner will work with you to assess how much the business can afford to pay each month and will then put a formal proposal to all of your unsecured creditors.  Creditors will be invited to vote upon the proposal and 75% of the creditors (in value) who are entitled to vote must vote in favour of the CVA for it to be passed.  Once passed, you will make a one payment per month to the insolvency practitioner who will distribute it to the creditors under the terms of the CVA.

Secured creditors are not bound by the terms of the CVA and in most circumstances will not partake in it so it is important that you are also communicating with your secured creditors at the same time. 

If you are experiencing cash-flow problems or being pursued for debts that you do not think the business will be able to pay, please do not hesitate to get in touch with one of our restructuring team who will be able to offer practical guidance and support.  The sooner that a problem is identified, the more options there are available to a business owner and the more chance there is of the business surviving these difficult times.