Updated: 18th May 2020
The drastic effect of coronavirus on business is likely to be seriously compounded if there’s a second lockdown. With industry-wide financial distress causing untold harm as it stands, what can you do to protect your business if a new wave of the pandemic strikes and we’re locked down for a second time?
Under these trying circumstances, you may be able to prevent your business failing by entering into an official insolvency procedure. Becoming insolvent doesn’t necessarily mean the end for your business - there are various formal processes designed to rescue companies in severe financial distress, and allow them to flourish given more time.
Company administration is commonly used where severe creditor pressure is being experienced, and directors are concerned that an attempt for winding up will be made. The process offers a moratorium of eight weeks in which creditors cannot legally chase your company for payment, and are unable to petition for your winding up.
This time period is used by the appointed administrator to formulate a plan for rescuing the business, and provides a very valuable ‘breathing space’ to think clearly about the best way forward.
The exit routes out of company administration vary, but potentially include:
Company Voluntary Arrangement (CVA)
A Company Voluntary Arrangement is one of the possible exit routes from company administration, but can also be undertaken in its own right. A CVA is a legally binding agreement that allows your company to make one repayment each month, and this is then distributed to creditors that voted in favour of the CVA.
Eligibility depends on the viability and makeup of your company – whether you own assets of value, for example, or your cash flows were relatively predictable before the pandemic – and if it’s deemed viable for the long-term by a licensed insolvency practitioner (IP).
Company Voluntary Arrangements generally last for five years – during this time your creditors cannot contact you or take legal action, and all interest and charges on your debts are frozen.
The government has introduced a raft of temporary measures to support businesses, including the Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Back Loan Scheme (BBLS), but it’s unknown whether this type of support will be available in the event of a second lockdown.
One way to protect your business from failing if there’s a second wave of the pandemic, however, is to seek additional financing as a pre-emptive measure. Depending on the type of business you run, and its industry, there may be a range of options open to you to increase your working capital reserves.
Selling assets of value that aren’t essential to your business, or using them as part of a sale and lease back arrangement, can generate a lump sum of cash to protect your business from failure during a second lockdown.
Professional assistance is vital during these unprecedented times, however, and with many businesses failing due to coronavirus, a potential second wave could cause further significant financial damage to many organisations.
Real Business Rescue is the UK’s leading rescue and recovery firm. We offer free same-day consultations in complete confidence – please contact one of our partner-led team for reliable independent advice.
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