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Sep 11

Supporting insolvency?

  • 11 September 2020

Many companies have taken advantage of COVID related soft loans to provide them with sufficient cashflow to ride-out coronavirus disruption. But does this do no more than push the ball down the road?

Advisers are likely working hard to assist their business clients extend the benefits of government largesse – grants and loans – in the hope that we will see a recovery in the UK economy at some time in the not too distant future.

However, if COVID related loans are being used to fund unavoidable losses there will surely come a time when these funds run out. Although interest charges on the government backed loans are low, the loans will need to be repaid. Any government guarantees will only engage when company assets are no longer available to fund repayments.

Which begs an important question. When do we admit to insolvency?

Many industries, particularly leisure and hospitality trades, are treading water, unable to open or only able to trade in a restricted fashion. Grants and loans are like thin ice to these businesses; they may provide some support from the murky depths below but at some point the ice will break.

So how are professional advisers expected to advise in these unprecedented circumstances?

The choices are clear enough as are the legal frameworks that underpin these choices.

Does government appreciate the parlous state of vulnerable sections of the economy? Are they prepared for business liquidations and unemployment rising to forbidding levels?

And now, as well as coronavirus, we are approaching the Brexit cut-off date and a no-deal outcome is looking uncomfortably likely. How will this affect manufacturers with trading links in Europe? Will their supply lines be disrupted?

One could be forgiven for thinking that those is charge of the economy are playing dice with our futures. One thing is clear. In the coming months, the UK business community needs to work closer than ever before with their professional advisers to ride out the coming storms.

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