My business is struggling financially because of Covid-19: what are my options?

As the economy struggles to recover from the Covid-19 crisis, many businesses are finding themselves in difficulty. It is important to know what help is available and what the options are if you may be facing insolvency.

Government support

The government are offering a range of assistance for businesses, aimed at helping them survive the disruption caused by the pandemic. As well as business rates relief and tax deferral options, a number of loans and grants have been made available.

It is worth checking eligibility and making a claim if your business needs help. Our guide below will assist you in understanding what you can apply for and on what terms the money is offered.

The Coronavirus Business Interruption Loan Scheme (CBILS)

Aimed at small and medium-sized businesses, the CIBLS provides access to loans and other finance up to a value of £5 million. The government will pay the first year’s interest and fees and guarantees 80 per cent of the lender’s money.

The loan may be for up to three years for overdrafts and invoice finance facilities and for up to six years for loans and asset finance facilities.

Eligibility for the CBILS

Businesses from any sector except banks, insurers and reinsurers can apply, to include insurance brokers. Public sector bodies and state-funded schools may not apply.

To be eligible, a business must have an annual turnover of up to £45 million and be based in the UK.

It is necessary to show that the business would be viable but for the pandemic and that it has been adversely impacted by this.

For loans of £30,000 or more, it is also necessary to confirm that the business was not in difficulty as at 31 December 2019.

Applying for the CBILS

All of the main UK retail banks are participating in the scheme, along with many others, meaning a choice of over 50 lenders. Their websites will give details of how to apply and the information they will need from you. This is likely to include the following:

· Annual accounts

· Management accounts

· Assets owned by the business

· Business plan

· Cash flow forecast

They will also need to know how much you wish to borrow, what the money will be used for and how long you would like to pay it back.

The Bounce Back Loan Scheme (BBLS)

If you need to borrow a smaller amount the government’s bounce back loan offers a 100 per cent state-backed loan of up to £50,000. No repayments are needed in the first year and no interest is charged in that time either. After the first twelve months, interest is payable at 2.5 per cent per year.

The loan is intended to be quickly accessible and to help small businesses, particularly where they are unable to access other funding.

Eligibility is on a similar basis to the CBILS, but you cannot apply for both schemes.

The loan period is six years, with the opportunity to pay the money back sooner.

Business support grant funds

Smaller businesses have the option of applying for the following grants:

The coronavirus Small Business Grant Fund

A grant of £10,000 from the local council, payable to small or rural businesses which pay little or no business rates.

The Coronavirus Retail, Hospitality and Leisure Grant Fund

Also available from the local council, this is a grant of up to £25,000 for those in the above sectors, payable to those whose business has a property with a rateable value of less than £51,000.

The coronavirus Local Authority Discretionary Grants Fund

The final grant is offered to small and micro businesses that are not eligible for the above grants. Up to £25,000 may be available if a business is based in England, with fairly high fixed property-related costs and a rateable value or mortgage/rent of less than £51,000.

Councils have been asked to prioritise small businesses in shared workspaces, regular market traders and bed and breakfasts who pay Council Tax (and not business rates).

It should be noted that the above is not an exclusive list of grants and that other funding is available for various industries and for different-sized businesses.

Voluntary insolvency

For businesses that have decided to go into voluntary insolvency, there are a number of main points to be aware of.

Voluntary administration

Company administration occurs when a licensed insolvency practitioner is appointed to temporarily run the company’s affairs. It happens when a business is struggling to meet its liabilities and it is intended to try and save the company or, if that is not possible, to achieve the best outcome possible for creditors.

Administration can be requested by creditors or entered into voluntarily by directors who understand that the business is no longer viable and needs help to find a way forward.

The administrator will need a statement of affairs from the business, including details of all assets and liabilities. He will then take over the company’s business to attempt a rescue, or to sell the company’s assets and account to the creditors.

During the period of administration, there is a moratorium on legal action against the company or to seize company assets.

Creditors’ voluntary liquidation

A creditors’ voluntary liquidation occurs when the directors of a company in financial difficulty agree with the shareholders to put the business into liquidation. The process is quicker, easier and less expensive than a forced liquidation and court hearing, as the agreement can be reached at a shareholders’ meeting.

An insolvency practitioner will need to be appointed to wind up the company and pay debts where possible.

Company voluntary arrangement

A company voluntary arrangement allows a company in difficulties to try and reach a deal with creditors. This can avoid expensive legal action on their behalf and stop the need for a winding-up order.

An insolvency practitioner would be able to draw up the proposed agreement, for example, repaying a debt over a set period of time by instalments, or the writing-off of part of a debt in return for the payment of the rest of it, in the hope that a creditor will receive more this way than they would if a winding-up order was made.

The current situation regarding winding-up petitions

When a company has been in financial trouble for some time, a creditor may eventually apply to the court for a winding-up petition. However, pursuant to the Corporate Insolvency and Governance Act 2020, the government has currently restricted statutory demands and winding-up petitions to minimise aggressive debt-recovery during the Covid-19 disruption. This means that a statutory demand cannot be used to present a winding-up petition until after 30 September 2020 at the earliest.

While this is not a blanket ban on winding-up petitions, it does mean that a winding-up petition should not be made where Covid-19 has had an adverse financial effect on the company in debt or where the company would have been able to pay its debts but for Covid-19.

At Lincoln & Rowe we understand the importance of helping our clients keep their business running smoothly. We are able to act on your behalf if you are involved in insolvency or liquidation, and can assist on your options if your business is financially damaged because of Covid-19. 

We have wide-ranging experience in commercial law and were named as the ‘Commercial Disputes Specialists of the Year” in the Corporate Livewire Innovation & Excellence Awards 2020 as well as ‘Boutique Litigation Law Firm of the Year’ in both the 2019 and 2020 Global Awards by ACQ5. Partner Dipesh Dosani was named Commercial Litigation Lawyer of the Year in 2019 and 2020 in the ACQ5 Law Awards

If you would like to talk to one of our expert legal team about any queries you may have regarding insolvency or liquidation, contact the author, Dipesh Dosani, or call the team today on 020 3968 6030 and we’ll be happy to help.

The above information is for general guidance on your rights and responsibilities and is not legal advice. If you need more details on your rights or legal advice about what action to take, please contact a legal advisor.

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Dipesh Dosani Partner
Dipesh advises clients on a wide range of commercial disputes including breach of contract, directors’ disputes, shareholder remedies, partnership issues, professional negligence and intellectual property. He is also able to provide clients with advice on all aspects of insolvency as well as investigations including misfeasance, undervalue transactions, preferences, transactions to defraud creditors and wrongful trading.


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