Legal briefing | |

COVID-19: UK Government assistance available to businesses

COVID-19: UK Government assistance available to businesses

Overview

This briefing was updated on 26 March 2021.

The UK Government announced an unprecedented stimulus package to help support businesses in the wake of the COVID-19 outbreak. These measures, originally announced by the Chancellor of the Exchequer in his budget on 11 March 2020, have since been rapidly expanded. The date on which it was last updated appears above.

This note provides a summary of the key measures to help businesses which were announced by the UK Government as part of its response to the COVID-19 outbreak. In addition, although not covered by this note, there will be pre-existing measures (and potentially commercial insurance) that businesses may continue to rely upon in order to get through the current crisis. Certain Business Representative Organisations and Trade Associations are also providing support to their members, which is not covered by this note but further details are available here. While focusing on measures in England, a number of them are pan-UK and the devolved parliaments have pledged to mirror the measures to the extent necessary. If you would like further details about any of these measures or wish to have an update on them, please do not hesitate in contacting a member of our team.

Useful resources

The UK Government's "COVID-19: support for businesses" hub is currently being kept up-to-date and is available by clicking here and is also sharing information through its Coronavirus Business Support page available by clicking here.

Travers Smith has a number of other COVID-19 related resources on our website that you might find useful, available by clicking here.

Coronavirus Job Retention Scheme

Where employers have reduced work for employees as a result of the COVID-19 crisis, or employees are otherwise unable to work because of the crisis (including if they have caring obligations, for example as a result of schools having to close), instead of terminating their employment, employers are able to instead make the relevant employees "furloughed workers" and claim a wage subsidy under the Coronavirus Job Retention Scheme.

The scheme was in the process of being wound down (and expected to cease on 31 October 2020), but was extended to 31 March 2021 a matter of hours before it was due to end. It has since been extended again to 30 September 2021.

IMPORTANT NOTE ON DEADLINES: The deadline (unless you have a reasonable excuse for missing it) for claiming the wage subsidy for each month is 14 calendar days from the end of that month (unless such date is a bank holiday or weekend in which case it will be the next working day). For example, the deadline for November 2020 wage subsidies was 14 December 2020 and so-on. Amendments to claims in the event of an error will, however, be possible for 28 days from the relevant month-end.

If an employer chooses to make employees "furloughed workers" and therefore keep them on the payroll, then:

  • the employee was not able to do any work for the employer while furloughed until 30 June 2020 (although part-time furloughing is now possible); and

  • the UK Government will contribute (or will have contributed)

    • 80% of that worker's usual monthly wage costs (subject to a cap of £2,500 per month) for the period up to 31 August 2020;
    • 70% of the worker's usual monthly wage costs (subject to a cap of £2,187.50 per month) for the month of September 2020;
    • 60% of the worker's usual monthly wage costs (subject to a cap of £1,875 per month) for the month of October 2020,
    • 80% of that worker's usual monthly wage costs (subject to a cap of £2,500 per month) for the period from 1 November 2020 to 30 June 2021,
    • 70% of the worker's usual monthly wage costs (subject to a cap of £2,187.50 per month) for the month of July 2021,
    • 60% of the worker's usual monthly wage costs (subject to a cap of £1,875 per month) for the months of August and September 2021 (the "Wage Cost Contribution").

Employer Contribution to wage costs: The employer has the choice as to whether they wish to top-up the employee's salary as much as they like, save that for the periods when the Wage Cost Contribution is less than 80% of their usual wage costs (see above) then in order to participate they need to top-up the employee's salary to the 80% (and £2,500 cap) level so that the employee is not worse off by the stepping down of the level of the Wage Cost Contribution.

Additional costs covered: On top of the Wage Cost Contribution, until 31 July 2020 the employer was also entitled to claim reimbursement from the UK Government for (i) employers' NICs on the Wage Cost Contribution and (ii) the minimum employer pension contribution of 3% on salary paid between the automatic enrolment 'qualifying earnings' threshold (£520 per month from 6 April 2020) and the Wage Cost Contribution. Since 1 August 2020, the UK Government ceased that additional contribution leaving the employer now liable for such amounts. The employer was never able to reclaim any apprenticeship levy (if applicable) paid on the employee's salary, or national insurance or pension contributions for any topped-up wage they have decided to pay in excess of the Wage Cost Contribution.

How to calculate the usual monthly wage costs: The scheme covers regular payments such as overtime, fees and contractual commission (not just salary) but tips, non-cash benefits, discretionary bonuses and discretionary commission are excluded. Was the employee either (i) on the employer's payroll on 19 March 2020 (meaning a payment of earnings reported to HMRC on a Real Time Information (RTI) Full Payment Submission (FPS) on or before 19 March 2020) or (ii) previously furloughed through the Job Retention Scheme prior to 31 October 2020?

  • If so, then the following amounts should be used as a base to calculate the Wage Cost Contribution:

    - for salaried employees, the employer should use the employee’s actual salary before tax, in the last pay period prior to 19 March 2020; or

    - for employees whose pay varies (e.g. zero hours workers and casuals) the employer can use the higher of either the amount the employee earned in the same month last year or the employee's average monthly earnings from the 2019/20 tax year.

  • If not, then the following amounts should be used as a base to calculate the Wage Cost Contribution:

    - for salaried employees, the employer should use the employee’s actual salary before tax, in the last pay period prior to 30 October 2020; or

    - for employees whose pay varies (e.g. zero hours workers and casuals) the employer should use the average wages payable between 6 April 2020 (or, if later, the date the employment started) and the day before they are furloughed.

What the employee can do while furloughed: While a furloughed worker, the employee was not able to undertake any work for the employer up until 30 June 2020. Since 1 July 2020, employers are now able to bring furlough workers back part-time, but will be responsible for paying the employee's wages while at work (with the Wage Cost Contribution continuing to apply to the remainder of their wages and the cap pro-rated to reflect any hours worked). To calculate the pro-rated subsidy, the employer therefore has to calculate the worker's usual working hours, then subtract the hours actually worked during the claim period.

Whether furloughed full-time or part-time, the worker must not undertake any work for the employer during any hours designated as furloughed hours. However, they can undertake training for their employer (provided that they are paid at or above the national minimum wage – any shortfall to be covered by the employer – and do not make any money for, or provide services to, their employer) and volunteer or work provided that (i) it is not for the employer that furloughed them or an associated entity of it and (ii) it is permitted under their contract(s) of employment. If the furloughed worker is a director, then they are entitled to carry out their statutory duties in relation to filing company accounts or providing other information relating to the administration of the company without losing their furloughed status. Also, if the furloughed worker is a union representative or other elected employee representative, they are able to undertake activities for the purpose of individual or collective representation of employees during furloughed hours.

Employee status and agreement: From a practical perspective, the employer will need to inform the employee in writing of their changed status (to a "furloughed worker") and agree this with the employee under normal employment law principles. If the employer wishes to bring furloughed workers back part-time (possible since 1 July 2020), they will need to enter into a new agreement setting out the working arrangements and the employee will need to agree to those arrangements.

The employee will still have the same rights at work, including to annual lease and parental rights. Furloughed workers continue to accrue annual leave and can take it whilst on furlough. However, such annual leave would need to be paid at the employee's normal full pay prior to furlough. It is up to the employer whether to allow employees to take annual leave during furlough or not. The employee will continue to be subject to the terms of their employment contract for the duration they are furloughed. The employer may go on to make employees redundant during the furlough period or afterwards if there is a genuine redundancy situation. In such a case the employer would have to follow the normal rules on redundancy and employees with at least two years' service would be entitled to redundancy pay. However, this will not affect any previous period of furlough for which the employer can claim funding.

Publication of employers using the Job Retention Scheme: HMRC publishes the details of employers (including individuals) who have used the Job Retention Scheme from December 2020, together with which value band the amount claimed falls into. The only exceptions will be if the publication thereof would result in serious risk of violence or intimidation. Businesses, especially any that remain healthy and profitable during the pandemic, may therefore wish to consider potential negative publicity before making a claim under this scheme.

Employers can claim reimbursement for the Wage Cost Contribution via a new HMRC online portal. Claims can be made before or after the employer has run the relevant payroll, with payments being made by HMRC within six working days. However, as claims for flexible furlough must take into account actual hours worked, there is an advantage in waiting until there is certainty about the hours worked before making a claim.

While separate to the Coronavirus Job Retention Scheme, businesses may also be interested to know that the UK Government also operates the Self-Employment Income Support Scheme (which provides support to self-employed individuals and has been extended to September 2021).

Eligibility

In principal, any entity (of all sizes and in all sectors) with a UK payroll scheme and a UK bank account are eligible for the Coronavirus Job Retention Scheme. The scheme extends to:

  • Employees but also workers, office holders, salaried LLP members, directors and apprentices

  • Salary costs from 1 March 2020 to 30 September 2021 (subject to the temporary staged step downs on the level of Wage Cost Contributions for the months of September and October 2020 as detailed above).

  • Employers can use it anytime in this period, although:

    - employers will only have been able to claim a Wage Cost Contribution (for the period to 31 October 2020) for employees that they furloughed for a full three-week period prior to 30 June 2020. In practice, this means employees would have been required to have been placed on furlough by 10 June 2020 to be eligible for such funding, although there were limited exceptions for employees returning from parental or bereavement leave, or from a period of mobilisation as a military reservist, after such date.

    - employers will be able to claim a Wage Cost Contribution for the period from 1 November 2020 to 30 September 2021 for employees regardless of whether they used the Job Retention Scheme prior to 1 November 2020.

  • For claims for the period from 1 July to 31 October 2020, the number of employees being claimed for at any one time was not able to be more than the maximum claimed before 30 June 2020. No such similar maximum employee limit exists for the period from 1 November 2020.

  • Wage Cost Contributions were available for workers who were on payroll at the relevant time
  • -For the period to 31 October 2020 it was for workers who were paid through payroll as at 19 March 2020 (this could have included workers who had left the business since 28 February 2020 for whatever reason, (not just redundancy), or been placed on unpaid leave, provided they had been placed on furlough by 10 June 2020.

  • -For the period from 1 November 2020 to 30 April 2021 it is for workers who were employed on 30 October 2020 (provided the employer made a PAYE RTI submission to HMRC between 20 March 2020 and 30 October 2020 in relation to them).
  • -For the period from 1 May 2021 it will be for workers who were employed on 2 March 2021 (provided the employer made a PAYE RTI submission to HMRC between 20 March 2020 and 2 March 2021 in relation to them).
  • While workers could have been furloughed more than once, for the period 1 March to 30 June 2020 they must have been furloughed for at least three weeks each time. Since 1 July 2020, there is no minimum furlough period as employers and employees will be free to agree part-time working arrangements during furlough (although a minimum claim period of one week applies).
  • The Scheme is expected to end completely on 30 September 2021 (Although it has been extended a number of times already and may be extended again).

  • Employers will need to be able to demonstrate if asked that the reason for the furlough was related to COVID-19.

  • Employers will need to be enrolled for PAYE online and have a UK, Isle of Man or Channel Island bank account.
  • Employers that are publicly funded (regardless of whether they are public sector) should use that money to pay staff rather than use the Job Retention Scheme.
  • Employers that are in administration should only use the Job Retention Scheme if there is a reasonable likelihood of retaining the employees.

The UK Government has said it will retain the right to retrospectively audit all aspects of the scheme (including the extent to which the employee might have worked for the employee during the period) with scope to claw back fraudulent or erroneous claims. Accordingly, employers will need to keep records of communications with employees about furlough, the wages paid and associated wage costs. The communication with employees about furlough must be kept for five years until at least 30 June 2025.

Key facts

80%
Contribution from the Government to Furloughed workers' salaries.
£2,500
Monthly cap on the Government contribution per employee.
1/3/2020
The date from which the scheme will cover eligible salary costs.

Please see our Q&A on the extension of the Coronavirus Job Retention Scheme for further details by clicking here, and further details from the UK Government here.

For more information, please contact:

Ed Mills
Partner, Head of Employment
+44 20 7295 3424
ed.mills@traverssmith.com

Job Retention Bonus

The UK Government previously announced a scheme called the Job Retention Bonus which would have seen a one-off £1,000 bonus payment to employers for each employee returning from furlough under the Job Retention Scheme (detailed above) and who remains continuously employed until 31 January 2021. However the Job Retention Scheme was subsequently extended, thereby rendering the Job Retention Bonus redundant. The UK Government has confirmed that "a retention incentive will be deployed at the appropriate time" however the nature of such incentive is yet to be confirmed.

For more information, please contact:

Ed Mills
Partner, Head of Employment
+44 20 7295 3424
ed.mills@traverssmith.com

Job Support Scheme

The Job Support Scheme (the "JSS") was due to commence on 1 November 2020, the day after the Job Retention Scheme (detailed above) was due to expire. However since the Job Retention Scheme was subsequently extended to 31 March 2021, the JSS has been put on hold for now. For details on how the JSS was due to operate, please see our Q&A on the JSS by clicking here.

 

For more information, please contact:

Ed Mills
Partner, Head of Employment
+44 20 7295 3424
ed.mills@traverssmith.com

Loan Guarantee Schemes

Depending on the prospective borrower's annual turnover and needs, it can apply for loans under either the:

  • Bounce Back Loan Scheme ("BBLS") for businesses of any turnover;

  • Coronavirus Business Interruption Loan Scheme ("CBILS") for businesses with an annual turnover of up to £45 million; or

  • Coronavirus Large Business Interruption Loan Scheme ("CLBILS") for businesses with an annual turnover of over £45 million.

The British Business Bank has produced useful tables comparing (and available by clicking the links) the BBLS to the CBILS and the CBILS to the CLBILS. The UK Government has extended the operation of the three schemes on a number of occasions, and they are currently expected to operate until 31 March 2021.

Some of the key terms are:

  1. Government Guarantee. The UK Government will provide the lender with a guarantee for either 80% (under CBILS and CLBILS) or 100% (for BBLS) of the outstanding loan meaning it is more likely to be approved by the lender.
  2. Interest. The UK Government will pay the first 12 months of interest on behalf of borrowers for loans under the CBILS and BBLS (but not the CLBILS). Commercial rates of interest (taking into account the UK Government guarantee, the benefit of which the lender is required to pass onto the borrower) will apply to loans under the CBILS and CLBILS. The interest rate applicable under the BBLS will be 2.5% per annum.
  3. Facility Limit. Depending on turnover, loans under the different schemes will be for:
    1. up to £50,000 under BBLS;
    2. up to £5 million under CBILS; and
    3. up to £200 million under CLBILS (although loans for over £50 million will have restrictions attached – see below).
  4. Duration of Loans. Subject to the Pay as You Grow announcement detailed below, loans under the BBLS will be for 6 years (although there will be no penalty for early repayment). The tenor of loans under CBILS is (i) up to six (extendable to ten years by the accredited lender if it will help businesses to repay the loan) years for term loans and asset finance and (ii) up to three years for overdrafts and invoice finance. Under CLBILs, the maximum repayment term is 3 years.
  5. Pay as You Grow: On 24 September 2020 the UK Government announced that existing BBLS borrowers are set to benefit from a new "Pay as You Grow" flexible repayment system, with the potential for extending the length of a BBLS loan from six years to ten, requesting interest-only periods of up to six months and/or payment holidays.

It is important to note that the UK Government guarantees are only to the lender, so the borrower remains fully liable to repay 100% of the debt (including any interest). However, borrowing under the CBILS or BBLS is likely to be particularly attractive to businesses facing a short-term cash-flow issue in view of the interest free element.

Applications: The schemes are operated through accredited lenders (including most high-street banks) of the British Business Bank. Experience so far with the CBILS has shown that eligibility criteria for the scheme are complex and banks have taken time to process applications; however applications under BBLS are more streamlined with money flowing within days. HMT publish management information each Tuesday for each of the various schemes (available by clicking here), which shows that BBLS has proved the most successful scheme by a considerable margin, both in terms of the total number of applications and the value of facilities approved.

Restrictions: A business borrowing more than £50 million under CLBILS will be subject to additional negative undertakings during the period of the loan. The business will be prohibited (until the loan is repaid in full) from (i) paying dividends not previously declared, (ii) agreeing any new share buy-backs and (iii) paying cash bonuses or awarding any pay rises to senior management (including the board) except where they a) were declared before the CLBILS loan was taken out, b) are in keeping with similar payments made in the preceding 12 months, and c) do not have a material negative impact on the borrower’s ability to repay the loan.

Security: The requirement for a borrower to give credit support will depend on each lender's policies. It is not expected that lenders will require any security under the BBLS but where there is sufficient security available for loans under the CBILS and CLBILS it is likely that the lender will take such security. More specifically, loans under the CLBILS will need to rank at least pari passu with other senior obligations (including secured and/or super-senior obligations, if any) of the borrower. Lenders will not be able to use anyone's primary residential property as security under the loan and lenders cannot require personal guarantees for loans under the BBLS or, under CBILS and CLBILS, for (i) more than 20% of the loan or (ii) loans under £250,000.

Fees: While participating in the CBILS and CLBILS, lenders will be required to pay a fee to the UK Government to access the guarantee, however borrowers will not be required to pay any such fee. There are not expected to be any non-guarantee-related lender-levied fees under the BBLS and the UK Government will cover such fees under the CBILS (except that fishery, aquaculture and agriculture businesses may not qualify for the full fee payment).

Issues for existing borrowing: Whilst the schemes will offer welcome liquidity to companies suffering financial stress, the incurrence of additional debt may be restricted under existing debt facilities. Careful attention should be given to debt incurrence capacity under any such arrangements. Waivers may be required (potentially on a tight timetable) to avoid triggering a default entitling existing lenders to accelerate their debt and enforce security. Clearly, the greater the number of existing lenders, the more logistically challenging this will be. It may not be an issue where the scheme partner bank is already the business' main lender. Ultimately, existing lenders may be comfortable with their borrower incurring unsecured loans in reliance on the government guarantee; the alternative (enforcement leading to an insolvency process) is typically destructive of value as compared to a consensual solution.

Issues for existing borrowing

Whilst the schemes will offer welcome liquidity to companies suffering financial stress, the incurrence of additional debt may be restricted under existing debt facilities. Careful attention should be given to debt incurrence capacity under any such arrangements. Waivers may be required (potentially on a tight timetable) to avoid triggering a default entitling existing lenders to accelerate their debt and enforce security. Clearly, the greater the number of existing lenders, the more logistically challenging this will be. It may not be an issue where the scheme partner bank is already the business' main lender. Ultimately, existing lenders may be comfortable with their borrower incurring unsecured loans in reliance on the government guarantee; the alternative (enforcement leading to an insolvency process) is typically destructive of value as compared to a consensual solution.

Issues for directors: As well as satisfying the usual corporate benefit rules which apply to every company when taking on debt or granting guarantees/security, when considering whether to borrow in circumstances of financial distress, directors should be mindful of their duties to creditors and, in particular but subject to the proposed changes detailed at section 12 below, the need to avoid wrongful trading. Company directors should have an objectively justifiable reason for taking on new debt. This involves having a clear understanding of the financial position of the company and a plan for avoiding an insolvency, often with the benefit of professional advice. It is important to consider whether there is a reasonable prospect that taking on new debt, together with any planned capital raising and/or cost-saving measures, will enable the company to survive. Whilst the plan need not be 100% certain, it is important that it is not fanciful or remote. This same analysis also applies to the CCFF scheme outlined at section 5 below.

Eligibility

Decision-making on whether a business is eligible for the schemes is fully delegated to the accredited lenders, but the basic eligibility criteria are:

  • the borrower being UK based (trading in, not just selling into, the UK and has the core of its business operations in the UK regardless of where it is incorporated);

  • the borrower generating at least 50% of its turnover from trading activity (subject to certain exemptions, such as for charities);

  • the funds being applied for business purposes and used to support primarily trading in the UK (or, in the case of loans under the BBLS that they will be used to provide economic benefit to the business, such as for working capital, and not for personal purposes);

  • the borrower (which can include sole traders / freelancers so long as the business is operated through a business account) having an annual turnover of no more than £45 million (for CBILS) or more than £45 million (for CLBILS). In assessing this test:

  • the qualifying period will be the 12 months preceding application;

  • where a borrower is part of a corporate group (i.e. controlled on either a legal or de facto basis) then the turnover test will be applied to that wider corporate group rather than just to the borrower – it is expected that this will include global rather than just UK turnover; and

  • where the borrower is a portfolio company of an investment fund, the turnover test will be calculated on a business by business basis, following a UK Government announcement on 16 April 2020 (so that portfolio companies are not be disqualified by virtue of needing to combine the turnover of all portfolio companies majority-held by a single sponsor) - a welcome announcement as we understand that many lenders were aggregating the turnover of all portfolio companies majority-held by a single sponsor;

  • the borrower will need to self-certify that it has been adversely impacted by COVID-19;

  • the borrower not having already used the CCFF (see section 5 below) or any of the other loan guarantee schemes;

  • in the case of loans under the BBLS, the borrower not having not borrowed under CBILS, CLBILS or the CCFF (see section 5 below) unless the amount being borrowed under the BBLS will repay the entity of such borrowings;

  • the borrower not being in certain prohibited finance, insurance or public sectors;

  • for loans under the CBILS or CLBILS, the borrower having a borrowing proposal (including evidence normally required by that lender for approving a loan, such as management accounts, forecasts, business plans etc.) which, were it not for the current pandemic, would be considered viable by the lender, and for which the lender believes the provision of finance will enable the business to trade out of any short-to-medium term difficulty;

  • in the case of loans under the BBLS, the borrower not being in bankruptcy or liquidation or undergoing debt restructuring at the time it submits its application; and

  • the borrower not being an "undertaking in difficulty" (or showing that it otherwise is compliant with applicable state aid rules – there are different rules depending on the size of business and when they were incorporated). Previously this test had to be met as of 31 December 2019 but the British Business Bank has since announced that such assessment can now either be applied as at 31 December 2019 or the date of application for the CBILS and CLBILS schemes. This means that businesses that would have previously been unable to take advantage of these schemes because of their corporate structure on 31 December 2019 can take action to rectify the situation by, for example, converting loan notes into equity. This will be welcome news to a number of businesses, especially those who are backed by private equity funds, who have struggled historically to satisfy some of the more technical rules under this test.

While they still may be eligible, fishery, aquaculture and agriculture businesses may not qualify for the full interest and fee payment exemption referred to above.

Further details from the British Business Bank are available here.

For more information, please contact:

Matthew Ayre
Partner, Head of Finance
+44 20 7295 3304
matthew.ayre@traverssmith.com

COVID Corporate Financing Facility ("CCFF")

Since 23 March 2020, the Bank of England (the "BoE") has been able to lend to large corporates by buying commercial paper (effectively an unsecured short form debt instrument). Corporates are expected to be able to borrow up to £1 billion each, depending on credit ratings and subject to constant review, and will need to borrow a minimum of £1 million and in multiples of £100,000. HM Treasury and the Bank of England confirmed on 22 September 2020 that the CCFF will close for new purchases of commercial paper with effect from 23 March 2021.

Some of the key terms of the commercial paper include that:

  • the maturity of commercial paper will be between one week and twelve months (although it can be repaid early if the borrower so decides);

  • in terms of pricing, the BoE will purchase the commercial paper on terms comparable to those prevailing in the markets before the economic shock from COVID-19, being more precisely:

  • for primary market purchases, it will purchase commercial paper at a minimum spread above a reference rate, based on the current sterling overnight index swap (OIS) rate. The respective reference OIS rate will be determined at 09:45 on the day of the operation;

  • for secondary market purchases, it will purchase commercial paper at the lower of amortised cost from the issue price and the price as given by the method used for primary market purchases as set out above. The BoE will also apply an additional small fee (currently set at 5 bps and subject to review) for use of the secondary facility, payable separately; and

  • the respective spreads are subject to review by the BoE, but by way of illustrative example as at 23 March 2020 these were 40 bps for a relevant A2/P2 short-term credit rating (see 'Eligibility' section below regarding minimum credit ratings);

  • drawdowns under the facility will be available for an initial 12 month period (ending March 2021) and at least 6 months' notice will be given before closing it;

  • the commercial paper can be in a simplified version based on the ICMA standard, but while other simplified versions may be considered they cannot have any non-standard features (such as extendibility or subordination); and

  • the commercial paper will be issued directly into Euroclear and/or Clearstream.

This facility therefore is designed to provide companies access to pre-crisis terms of debt (rather than anything more favourable – for example there is no interest holiday akin to the CBILS discussed above).

If a business issuing commercial paper under the CCFF with a maturity after 19 May 2021 will be required to commit to the BoE that it will show restraint on the payment of dividends and other capital distributions and on senior pay during the period in which their commercial paper is outstanding.

If a business considers itself eligible and wishes to borrow funds under this scheme then they should consider approaching their current bank (or, if their current bank does not offer commercial paper then select a bank that does from the link available here).

The BoE will publish weekly details of all businesses that have borrowed money under the CCFF (together with the amount borrowed).

Although the CCFF will offer welcome liquidity to eligible companies, important considerations apply for a company taking on new debt as discussed in section 4 above.

Eligibility

To be eligible for the CCFF:

  • The borrower will need to make a "material contribution to economic activity in the United Kingdom".
    • This should be satisfied if (i) it is a UK-incorporated company (regardless of whether it has a foreign parent) with genuine business in the UK, (ii) it has significant employment in the UK, or (iii) its headquarters are in the UK.
    • The BoE will, in addition, take into consideration the borrower's UK revenues, UK customer base and number of operating sites in the UK.

  • The borrower should be able to "demonstrate they were in sound financial health prior to the shock".

    ➢ The BoE will accept borrowers with the following credit ratings (from at least one of S&P, Moody’s, Fitch or DBRS Morningstar) as at 1 March 2020:

    • short-term credit rating of at least A-3 / P-3 / F-3 / R-3; or

    • long-term credit rating of at least BBB- / Baa3 / BBB- / BBB low.

    ➢ If the borrower does not have a short-term or long-term credit rating as at 1 March 2020 then the BoE will need to "assess that the issuer is of equivalent financial strength" in order to give it access to the facility. There are two ways for borrowers to show this: either (i) be internally rated as investment grade as at 1 March 2020 by multiple banking counterparties as shown on a central consolidated list (created for this purpose and maintained by Credit Benchmark) or (ii) get a form of retrospective "point-in-time" credit rating as at 1 March 2020 from one of the major credit rating agencies.

    Based on this eligibility criteria, the CCFF would be more suitable for larger companies with more sophisticated corporate treasury operations and investment grade standing. The CBILS and CLBILS (discussed in section 4 above) are likely to be a more suitable option for smaller, unrated, companies unfamiliar with commercial paper issuance. 

  • Companies, and other entities within their groups, can only access one of the CCFF, BBLS, CBILS and CLBILS (see section 4 above).

  • Banks, building societies, insurance companies and other financial sector entities regulated by the BoE or the FCA (including any companies within groups which are predominantly in such business) will not be eligible. Leveraged investment vehicles and public bodies or public undertakings (where the UK or other EU state can exercise dominant influence) will also not be eligible.

  • There will be no requirement for the borrower to have previously issued commercial paper.

Further details are available here.

For more information, please contact:

Spencer Summerfield
Partner, Co-Head of Corporate
+44 20 7295 3229
spencer.summerfield@traverssmith.com

Matthew Ayre
Partner, Head of Finance
+44 20 7295 3304
matthew.ayre@traverssmith.com

Barry Newman
Partner, Finance
020 7295 3451
barry.newman@traverssmith.com

Future Fund

Under this scheme (the "Future Fund") which will be available for new applications until 31 January 2021, the UK Government uses the British Business Bank to invest alongside private investors in businesses that have raised more than £250,000 from private investors in the past 5 years. This is most likely to be utilised by venture-capital-backed start-ups.

The investment is made by way of a convertible unsecured bridge financing loan, with at least 8% annual (non-compounding) interest and a 3 year term (without the ability for the company to unilaterally repay early without investor consent). The loan can convert into senior equity at a discount of at least 20% (or, in certain circumstances, be redeemed with a 100% redemption premium) upon the first of maturity, further successful funding rounds or a sale/IPO of the business. Over 50% of the aggregate amount of convertible loans must be provided by third party investors, and the UK Government's portion of the overall funding needs to be between £125,000 and £5 million. The money cannot be used to (i) repay any borrowings; (ii) pay any dividends; (iii) pay any bonuses; or (iv) pay any advisory fees.

Eligibility

The Future Fund eligibility criteria requires a borrower:

  • to have raised at least £250,000 from third party investors in the past 5 years and having third party investors willing to invest further;

  • to be the ultimate parent of its group, UK registered (unless the business has been required to establish a non-UK ultimate parent for the purposes of accelerator programmes such as TechStars or Y-Combinator) and incorporated on or before 31 December 2019;

  • to not being listed; and

  • to have either at least half of its employees being UK-based or at least half of its revenues being UK sales.

Further details are available here.

For more information, please contact:

Spencer Summerfield
Partner, Co-Head of Corporate
+44 20 7295 3229
spencer.summerfield@traverssmith.com

Tax deferral

VAT

All businesses in the UK were able to defer their VAT payments for the second quarter (applicable from 20 March 2020 to 30 June 2020) until the end of the 20/21 tax year. No application was required, and any businesses wishing to defer did not need to tell HMRC prior to doing so. Businesses should continue to file their VAT returns by the relevant date as normal.

Instead of having to pay the full amount of the VAT deferred at the end of the 20/21 tax year, businesses can opt into the "VAT deferral new payment scheme" which opened on 23 February 2021 and which will remain open until 21 June 2021. In order to do so, businesses must (i) create a Government Gateway account (if it does not already have one), (ii) submit outstanding VAT returns from the last 4 years, (iii) correct any errors on its VAT returns and (iv) ensure it knows how much is owed, including the amount deferred and any amounts that have already been paid. Under the VAT deferral new payment scheme, businesses are able to pay the deferred tax over a longer period (to March 2022) in a number of smaller instalments (with the number of instalments determined by the date on which a business joins the scheme) on an interest and penalty free basis. Businesses will need to opt in (before 21 June 2021) to take advantage of the extended time to pay as it is not automatic. You can apply by clicking here.

General

The UK Government has confirmed that all businesses in financial distress, and with outstanding tax liabilities, will be able to receive tailored support from the HMRC through the "Time To Pay" service. The Time to Pay service is also available for self-employed taxpayers (with up to £30,000 of self-assessment liabilities) who deferred their second payment on account for 2019/2020 (originally due in July 2020). Any such taxpayers will be able to agree a payment schedule with HMRC to pay the deferred tax, that would have been due in January 2021, over a 12-month period ending in January 2022.

While these arrangements are agreed on a case-by-case basis and it is difficult to apply general principles to what is and is not possible, we understand that HMRC has already been very receptive to requests for deferrals of tax payments.

Specific circumstances can be discussed with HMRC using their new COVID-19 dedicated helpline (0800 024 1222 between 8am-8pm on Monday to Friday and 8am-4pm on Saturday). Examples of arrangements that HMRC may discuss with a business are:

(a)  agreeing an instalment arrangement; or

(b)  cancelling penalties and interest where there are administrative difficulties in contacting or paying HMRC immediately.

In relation to instalment arrangements, HMRC will assess the income, expenditure and assets of the taxpayer and what is being done by the business to get their tax payments back in order. HMRC will then determine whether the business should be able to pay immediately or not, and if not, the timeframe that the business needs to get its payments back on track. More in depth questions may be asked by HMRC where a business has previously been granted time to pay, and in complex situations HMRC may ask for evidence before making a decision. Businesses should continue to file all relevant returns unless otherwise agreed with HMRC.

 

For more information, please contact:

Russell Warren
Partner, Tax
+44 20 7295 3227
russell.warren@traverssmith.com

Business Rate Relief

All retail, hospitality and leisure businesses as well as nurseries in England will benefit from a 12-month business rates relief for 2020/2021. While it has a limited sectoral scope, the relief is likely to be popular for eligible businesses which have long cited business rates as being an issue even when the economy is strong. There is no rateable value limit on this relief and will therefore apply to all premises in those sectors.

It will apply from the April 2020 council bill and while most businesses are not expected to need to take any action, some local authorities have decided to operate an application process.

Eligibility

To be eligible, the business must:

  • be based in England; and

  • be an occupied property wholly or mainly used as a shop, restaurant, café, drinking establishment, cinema, live music venue, for assembly and leisure, hotels, guest and boarding premises, self-catering accommodation or a nursery (being those on Ofsted’s Early Years Register and who wholly or mainly provide the Early Years Foundation Stage).

This is a test on use rather than occupation; businesses which are occupied but not wholly or mainly used for the purposes listed above will not qualify for the relief. The UK Government has stated that businesses which have closed temporarily due to the UK Government's advice on COVID-19 should be treated as occupied for the purposes of obtaining the relief.

Further details are available from the UK Government for retail, hospitality and leisure businesses by clicking here (including a non-exhaustive list of those businesses the UK Government considers will benefit from the relief which they are regularly reviewing) and for nurseries by clicking here (including details of properties that will benefit from the relief).

For more information, please contact:

Russell Warren
Partner, Tax
+44 20 7295 3227
russell.warren@traverssmith.com

Grants

Old grants

As the pandemic has evolved, so has the UK Government's approach to grants which were available. The following is a summary of previously available COVID-19 grants:

(a) Small Business Grant: £10,000 to all businesses regardless of sector who were eligible for small business rate relief (rateable value less than £15,000) or rural rate relief (e.g. being the sole post office in a small village). Closed with the last grants made by 30 September 2020. Businesses who think they should have, but did not, receive the relevant grant should contact their local authority.

(b) RHL Business Grant: £25,000 to all retail, hospitality and leisure businesses operating from smaller premises, with a rateable value between £15,000 and £51,000. Closed with the last grants made by 30 September 2020. Businesses who think they should have, but did not, receive the relevant grant should contact their local authority.

(c) Discretionary Grant: £25,000 or up to £10,000 (discretionary) to small businesses who had "suffered a significant fall in income due to the COVID-19 crisis" but were not eligible for the Small Business Grant or RHL Business Grant.

November Lockdown Grant: Businesses that were required to close during the national lockdown from 5 November to 2 December 2020 were entitled to a grant of (i) £1,334 for sites with a rateable value of £15,000 and less, (ii) £2,000 for sites with a rateable value of over £15,000 but less than £51,000 and (iii) £3,000 for sites with a rateable value of £51,000 or more. Different local authorities are applying different cut-off dates for applications (many in January 2021). Any businesses who think they may be entitled to (but have not received) the November Lockdown Grant should contact their local authority urgently.

(e) Christmas Pub Grant: Pubs (that were established before 1 December 2020 and subject to Tier 2 or Tier 3 restrictions from 2 December 2020) that derive less than 50% of their revenue from food sales were entitled to a one-off grant of £1,000. Different local authorities are applying different cut-off dates for applications (many in January 2021). Any businesses who think they may be entitled to (but have not received) the Christmas Pub Grant should contact their local authority urgently.

Current grants

As the response to COVID-19 has evolved, the UK Government established grant schemes more reactive to toward local (rather than pure national) lockdowns. These are:

2021 National Lockdown Top-Up Grant: The UK Government has announced that it is going to be making an additional one-off grant available to businesses as a result of the third UK national lockdown announced on 4 January 2021. Such grant will entitle businesses which have been required to close (and which are not able to operate effectively remotely) as a result of the national restrictions to a one-off top-up grant as follows: (i) £4,000 for businesses with a rateable value of £15,000 or under, (ii) £6,000 for businesses with a rateable value between £15,000 and £51,000 and (iii) £9,000 for businesses with a rateable value of over £51,000.
This top-up grant is in addition to the Local Restrictions Support Grant (Closed Businesses) detailed immediately below.

Local authorities have not yet operationalised the new grant (awaiting formal guidance from central government). It is expected that it will apply in a similar fashion (regarding number of premises etc.) as the Local Restrictions Support Grants detailed immediately below.

Local Restrictions Support Grant (Closed Businesses): This grant is available for businesses (such as, but not exclusively, bars and restaurants) which have been required to close either (i) for at least 14 days as a result of Tier 2, Tier 3 or Tier 4 local lockdown restrictions or (ii) subject to detailed confirmation by the UK Government as at the date of this note, for the duration of the third UK national lockdown announced on 4 January 2021.

  • Eligible businesses will be entitled to a grant of (i) £667 for each 14-day qualifying restrictions period for sites with a rateable value of £15,000 and less, (ii) £1,000 for each 14-day qualifying restrictions period for sites with a rateable value of over £15,000 but less than £51,000 and (iii) £1,500 for each 14-day qualifying restrictions period for sites with a rateable value of £51,000 or more.

  • Businesses with more than one premises within the zone will be entitled to a grant for each premises. The rateable value applied will be those that existed at the beginning of the restrictions.

  • To be eligible, the business will be have to pay business rates and have been required to close (i.e. not chose to do so) as a result of local or national restrictions starting on or after 9 September 2020. They will have been deemed to have been required to close for these purposes if their usual customer service is in-person (which has been prohibited) continuing to provide an alternative permitted business (such as a restaurant starting to do take-aways) will not invalidate a claim. Businesses entitled to the Nightclub (etc.) Grant (see below) are not entitled to the Local Restrictions Support Grant.

Local Restrictions Support Grant (Open Businesses): It is not only those businesses that are required to outright close that suffer from local restrictions. For example certain hospitality services may remain open, but only on a reduced hours basis. The criteria and operation of this scheme has been heavily delegated to local authorities, but it is expected to target hospitality, hotel, bed & breakfast and leisure businesses. Again the value of the grant awarded per business is tied to the "local knowledge and discretion [of the local authorities] relative to their economic need" (and therefore may vary according to each local authority), but will be based on the rateable values of business sites, which the UK Government anticipates  to be as follows (subject to  a local need to deviate): (i) £467 for each 14-day period for sites with a rateable value of £15,000 and less, (ii) £700 for each 14-day period for sites with a rateable value of over £15,000 but less than £51,000 and (iii) £1,050 for each 14-day period for sites with a rateable value of £51,000 or more.

Nightclub (etc.) Grant - National Restrictions: Certain business such as nightclubs were required to close nationally on 23 March 2020 and are still not able to open. Such businesses are entitled, for the period from 1 November 2020 (but not retrospectively) to claim for a cash grant of: (i) £667 for sites with a rateable value of £15,000 and less, (ii) £1,000 for sites with a rateable value of over £15,000 but less than £51,000 and (iii) £1,500 for sites with a rateable value of £51,000 or more) for each 14 day period they are closed from their local authorities.

Additional Restrictions Grant - National or Local Restrictions: The UK Government accepts that not all businesses struggling as a result of COVID-19 will be sufficiently covered by the above summarised grants. For example, businesses with no rateable property will not be eligible for any such grants. Therefore an additional discretionary fund has been made available to local authorities to provide funds to such businesses in need. While the UK Government have delegated such funds to the discretion of local authorities, they expect it to be used to support businesses (such as suppliers of the retail, hospitality and leisure sectors as well as the events sector etc.) which, while not legally forced to close, are nonetheless severely impacted by the restrictions.

Grants paid based on business rates are expected to be made to the person who (according to the billing authority's records) was the ratepayer for the property as at the date of the relevant restrictions first being applied. In a shared office arrangement, a more typical arrangement is that the landlord charges a rent inclusive of rates (to the extent that they are payable, as many small businesses in particular already benefit from reliefs). In this case, it's likely that the landlord will receive the grant but politically is likely to be under pressure to share the benefit of this with the actual occupants in proportion to their rental contributions.

The above summarised grants are subject to the relevant business not exceeding permitted state aid limits and certain insolvency restrictions. Following the end of the Brexit implementation period on 31 December 2020, the UK is no longer subject to EU state aid rules. It is however subject to state aid restrictions in various Free Trade Agreements globally, including the new UK-EU Trade and Cooperation Agreement (the "UK-EU TCA"). While state aid rules are complex and different Free Trade Agreements apply different tests, the UK Government's support in response to COVID-19 will broadly be in compliance with its obligations under the UK-EU TCA if it is (i) less than 325,000 Special Drawing Rights (c. £345,000) per beneficiary over a three-year period and therefore de minimis, (ii) a targeted and proportionate response to a national or global economic emergency or (iii) permitted under the EU "Temporary Framework" (which has its own higher de minimis level which applies in certain circumstances) which will continue to apply to schemes that were already in operation before 31 December 2020.

Businesses who think they might be eligible for the above summarised grants should contact their local authorities (and check their websites) as they are not currently expected to be paid automatically as was the case for some of the previous COVID-19 grants.

 

For more information, please contact:

Matthew Ayre
Partner, Head of Finance
+44 20 7295 3304
matthew.ayre@traverssmith.com

Russell Warren
Partner, Tax
+44 20 7295 3227
russell.warren@traverssmith.com

Statutory Sick Pay

As background, businesses are required to pay a minimum amount of Statutory Sick Pay (currently £95.85 per week as of 6 April 2020) for employees who are off sick for up to 28 weeks. Statutory Sick Pay is normally payable from the fourth day of sickness absence.

As a response to COVID-19, the UK Government has implemented legislation to change the rules so that employees are now covered by Statutory Sick Pay if they:

  • self-isolate because they or someone in their household or someone in their household "bubble" has symptoms of COVID-19;

  • self-isolate because they are notified to do so as a result of the UK Government's 'test, track and trace' scheme;

  • are extremely vulnerable and have been advised to shield; or

  • self-isolate because they have been advised to do so in advance of a hospital procedure. 

The UK Government has also implemented further legislation requiring Statutory Sick Pay to be paid from the first (rather than fourth) day of absence for any COVID-19 related absence, with retrospective effect from 13 March 2020.

Under the new Coronavirus Statutory Sick Pay Rebate Scheme, certain SME businesses are able to claim back Statutory Sick Pay paid to employees for sickness absence due to COVID-19, up to a maximum of two weeks per employee (up to £191.70 per eligible employee). Such Statutory Sick Pay can be reclaimed by eligible employers through an online service.

The rebate scheme does not cover any enhanced sick-pay offered (contractually or otherwise) by employers, and businesses are still required to fund the up-front cost of such sick-pay (potentially causing painful cash-flow issues in the current climate). However, it could be especially valuable to low-skilled workforce-heavy businesses if a large percentage of the workforce is off sick at any one time.

Eligibility

To be eligible to claim back the Statutory Sick Pay:

  • the employer must be UK based and have had fewer than 250 employees on 28 February 2020. For these purposes:

    (a) corporate groups will be treated as being a single employer but only employees in the UK will count; and

    (b) it is our expectation that portfolio companies of investment funds will not be treated as belonging to the same corporate group as other sister portfolio companies;

  • the employer must maintain a record of staff absences (although no doctor note is normally required) and payments of Statutory Sick Pay;

  • the employee is eligible for Statutory Sick Pay and is off work due to COVID-19; and

  • the payment must have been made on or after 13 March 2020 for employees self-isolating because they or a member of their household has suspected symptoms; on or after 16 April 2020 for employees shielding; on or after 28 May 2020 for those self-isolating under the 'test, track and trace' scheme; on or after 6 July 2020 for those self-isolating because someone in their bubble has suspected symptoms; or on or after 26 August 2020 for those notified to self-isolate before a hospital procedure. 

For more information, please contact:

Ed Mills
Partner, Head of Employment
+44 20 7295 3424
ed.mills@traverssmith.com

Protection from eviction

Mirroring measures previously announced for domestic tenants, the UK Government has confirmed that landlords of commercial premises will be prevented from taking steps to forfeit and recover possession of those premises if a tenant fails to pay rent.

The Coronavirus Act 2020 (the "CA") now provides protection to business tenants for non-payment of yearly rent, service charges, insurance contributions and other sums due under a business tenancy from 25 March 2020 until 30 June 2021. This does not affect enforcement action already underway pre-25 March 2020 although the arrears subject to the protection of the CA do not have to relate to the March, June, September and/or December 2020 quarter alone.

The leases benefiting from this protection are those business leases to which Part 2 of the Landlord and Tenant Act 1954 apply. The Ministry of Housing, Communities and Local Government has clarified this by stating that the protection against forfeiture in the CA is intended to apply to all commercial leases. 

A landlord can still forfeit and recover possession of premises as a result of other breaches of lease, for example, failure to comply with 'keep open' clauses, insolvency defaults or breaches of repair covenants. The landlord's rights to do so depend on the drafting of the particular lease, and remain subject to the statutory right of tenants to apply to the courts for relief.

The CA does not protect business tenants from the corresponding debt claim that a landlord will have where rents aren't paid under a lease (together with any interest or penalties due thereon which will be dictated by the terms of the lease), or the other remedies of a landlord such as recourse to rent deposits, guarantees and their rights under the Commercial Rent Arrears Recovery statutory regime ("CRAR") although, in respect of CRAR see further below. This means that, while businesses that go into arrears on their rent will be relieved that they cannot be evicted in the short-term, they will need to repay the arrears in full plus accrued interest once the protection is lifted to avoid facing eviction at that point. This also means that landlords are still able to pursue tenants through the courts for unpaid sums, if they are minded to do so.

The moratorium against taking forfeiture action is has been further extended until 30 June 2021.

Pursuant to the Corporate Insolvency and Governance Act 2020 (see section 12 below for further details), there is a continued ban on the use of statutory demands and winding up petitions where a company cannot pay its rent due to COVID-19 until 30 June 2021 to align with the period of protection against forfeiture. The UK Government has also put in place legislation to prevent landlords using CRAR unless they are owed rent for 457 days from 25 March 2021 and 554 days between 24 June 2021 and 30 June 2021 or more.

Although this is an ever-changing picture, we continue to recommend that landlords and tenants enter into discussions regarding rent suspensions and repayment terms, and document what is agreed to avoid later disputes. In doing so, tenants should be mindful as to their ability to repay suspended or delayed rent in the near future.

While private homeowner landlords on buy-to-let mortgages will benefit from recently-announced payment holidays on their mortgages, there are no similar proposals in respect of mortgage payments on commercial property. Landlords should consider reserving rights to revisit any rent concessions they put in place if the UK Government announces measures for support with unpaid rent. There have been changes announced affecting the criteria to be satisfied by landlords to recover possession of residential premises from tenants. We would recommend speaking to a member of the real estate team for further details on these changes, where relevant.

For loans falling under FCA regulation, it has issued guidance that no responsible lender should be considering repossession as an appropriate measure at this time and should grant payment holidays where needed as a result of COVID-19. Where appropriate, landlords should enter into discussions with their lenders in conjunction with any concessions granted to their tenants.

Further details as to the considerations that either landlords or tenants will have during this time are available on our website here and further details from the UK Government on the protection from eviction are available here.

 

For more information, please contact:

Simon Rutman
Partner, Head of Real Estate
+44 20 7295 3379
simon.rutman@traverssmith.com

Changes to the insolvency regime

The UK Government has introduced measures (some of which are on a permanent basis) to improve the UK's insolvency system in response to the COVID-19 situation.

Pursuant to the new Corporate Insolvency and Governance Act 2020:

  • A temporary suspension of winding up petitions and statutory demands. Creditors are prevented from presenting a petition to wind up a company on the basis of an unpaid debt unless they have reasonable grounds to believe that the grounds for winding up the company would still have applied if COVID-19 had not had an effect on the company. This temporary suspension applies from 27 April 2020 to 30 June 2021.

    Any statutory demand served between 1 March and 30 June 2021 cannot be used as the basis of a winding up petition against a company after 27 April 2020.

    There are also provisions which rectify situations where a petition has already been issued or a winding-up order made in contravention of the new measures.
  • A temporary suspension of the wrongful trading provisions for company directors, applying retrospectively from 1 March 2020. The Court will not hold a director responsible for the worsening of the financial position of the company or its creditors during the period between 1 March 2020 and 30 June 2021. There is no requirement to show that the company's worsening financial position was due to COVID-19. This temporary measure applies to the directors of most companies, but certain types of companies are excluded (such as insurance companies, banks and financial services companies). Importantly, there is no change to directors' duties more broadly (including the obligation to act in the best interests of the creditors when a company is insolvent) or to the fraudulent trading regime. The risk of disqualification or other actions against directors for breach of duty or misfeasance therefore remain.

  • Prohibition on ipso facto clauses in contracts for the supply of goods or services. Clauses which permit the supplier to terminate (or vary the terms of) a supply contract on an insolvency of the customer will be ineffective. Suppliers will also be prevented from terminating a contract based on past breaches once the customer enters an insolvency procedure. Suppliers will only be able to terminate (or vary) the contract with the consent of the relevant office-holder or the directors (if the company is in a solvent restructuring procedure) or by applying to court and demonstrating that the continuation of the contract would cause the supplier hardship. A number of types of supply contracts are exempt from these new rules, broadly those involving financial services and those covered by the existing continuation of essential supplies regime. Contracts with small suppliers who meet prescribed criteria are temporarily exempt until 30 June 2021.

  • A new, free-standing, moratorium from most types of creditor action, which can be instigated by the directors of a company in financial distress through a relatively simple out of court process. Whilst the moratorium will be overseen by a "monitor" (an insolvency practitioner), the directors will retain the day-to-day control of the company.

    The moratorium is available for use by the majority of companies, however there are detailed eligibility requirements (some of which have been relaxed temporarily to account for the effects of COVID-19). The moratorium will only be available for use by a company that is (or is likely to become) unable to pay its debts and where there is a likelihood of rescuing the company as a going concern.

    The initial term of the moratorium is 20 business days, however this can be extended once by the directors, or otherwise with the agreement of creditors or with court approval. It could be used to provide breathing space whilst a company is preparing for a CVA or scheme of arrangement or a solvent sale or other consensual restructuring. Once in the moratorium, the company will only be required to pay those pre and post-moratorium debts prescribed by the legislation and there are restrictions on certain actions (such as the disposal of certain assets and the incurrence of further debt) without the consent of the monitor or the court. The moratorium is also required to be widely notified on the company's website, place of business and company documents.
  • A new court-approved restructuring plan proposal similar to the existing scheme of arrangement under the Companies Act 2006, but with the ability for the court to bind all creditors to a restructuring plan even where not all classes of creditor have voted in favour of it (known as cross-class cram down) provided that the court is satisfied that those creditors would not be worse off in the likely alternative (such as administration). This tool would be available to companies in financial distress in order to impose an arrangement or compromise aimed at addressing the company's financial difficulties.

For further details, see our more detailed note available here.

 

For more information, please contact:

Edward Smith
Partner, Head of Restructuring & Insolvency 
+44 20 7295 3482
edward.smith@traverssmith.com

COVID-19 HUB

The rapid global spread of the Covid-19 virus has resulted in significant market volatility and is placing an immense strain on the business community. Get guidance and practical advice on key operational and legal issues.

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