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We are coming out of the pandemic, but businesses continue to feel its impact. Over the last two years, many of our clients have made use of Government support packages, including Bounce Back loans, CBILS loans and, of course, the generous furlough scheme. 

Many businesses were also able to claim rates relief and defer VAT for payment due between 20 March 2020 and 30 June 2020. Creditors and landlords have been prevented from taking legal action under a moratorium, which the Government put in place until 25 March 2022. While this kept the wolf from the door for the immediate term, for some businesses was it simply a case of kicking the can down the road?

Repaying Covid debt

Despite all the uncertainty of the last two years, one thing was for sure: these support measures had to come to an end at some point. Sadly, some businesses are now struggling to repay Covid debt.

Probably one of the most critical support measures was the furlough scheme. This was tailored off between July and September 2021, with employers being asked to contribute more to furloughed employees’ wages. This, coupled with the commencement of monthly Bounce Back Loan repayments, was a step too far for some. 

We found that a lot of businesses simply have not returned to pre-pandemic levels of trade or profitability. Already stretched cash-flow demands were tested further and this led to an influx of enquiries to our Business Recovery and Insolvency team during August and September 2021. 

Some were able to refinance further or make use of the Pay As You Grow scheme to help in the short term with repaying the Bounce Back Loans. Others were required to make redundancies or restructure other overheads to help with cashflow. For some, the financial pressures were simply too much and they were forced into a formal insolvency process. 

The ongoing impact of the pandemic

As we entered 2022, we continued to hear of many businesses who were still suffering, having not returned to ‘normal’ trade. One such industry was, of course, the hospitality sector. As the Omicron variant hit the UK in early December and the subsequent announcements were made by the Government, many pubs and restaurants reported a large number of cancellations in Christmas bookings leading to poor December trading. Of course, this is a time when these businesses would typically have their best trading month to see them through the following quieter period.

We have seen a variety of sectors affected by the pandemic, but the construction sector has been hit hard again. Supply chain issues, delays and increased cost of materials has only added to the burden. 

We recently saw the collapse of Midas Group, one of the region’s largest construction firms. Having reported its first pre-tax losses for the period 30 October 2020, it was left unable to survive. The knock-on effect to the South West region of a company like Midas entering administration is huge for suppliers, sub-contractors and employees.

Acting early and forecasting cashflow

There has to be a certain amount of empathy for many of these business owners who, through no real fault of their own, are now left with a struggling business trying to keep everything afloat.

In these times, taking early professional advice is crucial. Knowing all your options may be enough to help a business survive if issues can be identified early enough. 

One thing I don’t see enough from business owners is a cashflow forecast. Cashflows not only show business owners where their business is heading, but also identify stress points along the way. In times like these, business owners need to constantly review the direction of their business. This is even more important if a business could be argued to be insolvent. If it continues to trade and the position becomes worse, this could result in personal liability to directors under actions such as wrongful trading.  

Business owners should document decisions taken at key points. This will help mitigate any personal risk later even if things don’t quite go as hoped.

While we have already seen post-pandemic ripples of failing businesses, the general feeling is that the worst is yet to come. 

As pressures continue to mount from repayments to the banks, HMRC and other stakeholders, business owners need to review, plan and take action if they want to survive. 

For advice on any of these issues, please contact me or a member of our specialist Business Recovery and Insolvency team.

By Jon Mitchell, Partner and Head of Business Recovery & Insolvency