In these challenging times, our teams have been receiving a high volume of queries from client about impact of Covid-19 on their businesses and key issues such as tenancies, debt recovery and the current status of the government support available to help them.

To assist our clients with enquiries such as these Azher Quyoom, partner in our dedicated corporate recovery and insolvency team has collated some of his most frequently asked questions from this week, with his responses, in the hope that this information is useful to you. Each week, we publish an article with a new set of questions from the week but if you have any queries, at any time, please talk to the team for more detailed advice that is specific to you and your business.

My business cannot trade due to the lockdown. What can I do?

The first port of call should be the government introduced measures, introduced to help businesses survive during and following the lockdown. It doesn’t matter if you are a SME, limited company or self employed individual, you may be eligible for one or more of the following support packages:

• Cash grants of up to £25,000;
• Wage payment subsidies under the Job Retention Scheme – renewed until October 2020 – 80% until July 2020 up to £2,500; split with employers after that until October;
• Covid Business Interruption Loans (CBIL);
• COVID-19 Corporate Financing Facility;
• Three months business rates holiday;
• Statutory Sick Pay rebates;
• Deferment of VAT and self assessment tax payments;
• Self employment Income Support Scheme;
• HMRC will entertain Time to Pay arrangements.

Are there any things that I can do myself?

Yes there’s plenty of what I call, ‘house-keeping’ measures which you can do yourself that will help you manage your business whilst in lockdown:

• Forecast your cash requirements on a daily/weekly or monthly basis;
• Chase up outstanding payments;
• Cut unnecessary costs;
• Consider alternative finance;
• Keep your books and records up to date

I’m a landlord but my tenant isn’t paying rent. Can I forfeit the lease or take other action   against them?

This is a complicated picture which requires a detailed case by case review, however the overview is as follows-

At the start of the lockdown the government announced a number of temporary legislative and financial measures designed to help businesses survive. This was both a creditor and debtor perspective. We’ve already discussed the financial help that the government has put in place to help your income and cashflow. In terms of rent, the government recognised quite early on that rent would fall due for many tenants on the usual March quarter day and then again on the usual June quarter day, when the country may be just coming out of lockdown. Tenants may therefore be struggling to pay their rent. The government therefore announced a temporary legal measure to prevent landlords from forfeiting leases. Some landlords, in response, decided to present winding up petitions against tenant companies and bankruptcy petitions against individuals for unpaid rent. This was within the letter of the law as it stood in March. In April, in response to a small but growing number of petitions, the government announced further temporary measures that restricted the presentation of winding up petitions in the majority of courts in England and Wales on COVID 19 related grounds. The government further announced that the majority of cases in the system would be adjourned pending the re-opening of the courts following lockdown. These measures were designed to give debtors, including tenants, breathing space to survive whilst they were shut down or carrying out limited trading. Certain legal measures are still available to landlords but, anecdotally, their effectiveness is limited whilst many businesses are shut down. There is also an element of commerciality to consider – if a landlord does enforce against a tenant to the extent that they vacate then that is only of use if the landlord has a tenant to replace them with.

That sounds unfair to landlords?

It does and to be fair, the position has been raised with government as I understand it.

I think we will see a softening of the position over the coming months as the economy starts to re-open, not least because many landlords rely on rents to pay commercial loans and mortgages and a balance has to be struck between the respective rights of landlords and tenants.  Also, landlords shouldn’t also lose sight of the fact that unpaid rent accrues, isn’t written off unless they agree to do that. So, in theory, unpaid rents should be paid later down the line, if not on time.

Is there anything else landlords could do?

Yes, showing willingness to be flexible seems to work for some landlords I’ve spoken to. I’ve come across situations where landlords have agreed rent payment holidays, rent deferments or they have allowed tenants to pay monthly instead of quarterly in order to help cash-flow – the house-keeping points I mentioned earlier.

If a company isn’t paying its rent or other debts on time then isn’t that insolvency? Doesn’t that mean problems for the directors?

Technically being unable to pay debts as and when they fall due is one of two broad definitions of insolvency and it’s widely assumed that many companies and individuals will be closely looking at their solvency at the minute. This is why the government has introduced such wide ranging support measures to ease the financial burden on businesses and has just announced the continuation of support measures for furloughed employees. Beyond that help, the government has also temporarily disapplied the wrongful trading provisions in the Insolvency Act as part of the bundle of legal changes designed to help businesses survive the COVID 19 pandemic. Wrongful trading is where a company is insolvent and the directors know that it cannot avoid going into liquidation but carry on trading nonetheless. Normally, debts incurred after the directors knew liquidation could not be reversed or avoided, can be claimed personally from those directors. It’s a powerful piece of legislation. For now, those provisions are temporarily disapplied – a clear sign of the extent to which the government is trying to help struggling businesses.

Isn’t that a risky situation for those dealing with companies that eventually go into liquidation?

A lot of people initially thought so, but on reflection, my view is that I think the risk is probably just about the same as it would normally be, albeit in unprecedented circumstances. The bottom line is that companies still have to be run properly by their management.  If a company fails and there are signs of mismanagement on the part of the directors in the lead up to insolvency, then that can still be pursued in liquidation just as normal. The Chancellor has stated that the easing of the wrongful trading rule does not mean you can trade fraudulently or trade in a misfeasant manner or allow your conduct as a director to be unfit or fall below the standard expected of a reasonably competent director. All of these things remain unchanged and act as the counter-balance to the temporary change to wrongful trading.

Finally, I would say that if there is ever any doubt about management decisions that you are making, then always make and keep a detailed written record of the reasons for making that decision – again, the house-keeping point that I mentioned earlier

Our team is on hand to help you, your business and your family however we can, so please get in touch with us on 01482 325242 or email enquiries@andrewjackson.co.uk

Correct as of 4pm on 15.05.2020