Manufacturing & Engineering Article
07 June, 2021
In response to COVID-19, the Government introduced a number of support packages in order to ease the financial burden on businesses. Now that Government restrictions are easing, life is beginning to return to some semblance of normality, however, businesses may struggle in getting back on track as the Government begins to pull their support.
A number of support packages were made available to manufacturers to reduce the burdens of COVID-19, including:
The Government's Recovery Loan Scheme assists business in obtaining finance to assist in their recovery after the COVID-19 pandemic. Under the Scheme, manufacturers could obtain up to £10 million, of which the Government guarantees 80% of the finance to the lender.
The length of the loans depends on the type of facility which a business applies for and will last for either:
The amount offered and the terms of the loans will depend on the lender. This Scheme is currently available until 31 December 2021.
Between 23 February 2021 and 21 June 2021, the Government has introduced a VAT Deferral New Payment Scheme, which allows manufacturers to pay any deferred VAT in interest-free instalments, ranging from 2 to 11 equal instalments depending on when a business joins the Scheme.
Eligible businesses must join by 21 June 2021 in order to obtain relief. Between 20 May 2021 and 21 June 2021, eligible businesses will have the option to pay any deferred VAT in up to 8 equal instalments.
In order to be eligible to use this Scheme, businesses must:
Further information regarding the VAT Deferral New Payment Scheme may be found on the Government website: https://www.gov.uk/guidance/deferral-of-vat-payments-due-to-coronavirus-covid-19.
At the outset of COVID-19, the Government introduced a number of grants to assist businesses in staying afloat during the various restrictions and lockdowns, including:
As businesses are beginning to return to normal, the Government is restricting the number of grants now available to manufacturers and other businesses.
The Coronavirus Job Retention Scheme, or Furlough Scheme, has allowed employers to furlough employees who they cannot maintain due to COVID-19. Under the Furlough Scheme, employers can recover up to 80% of an employee's usual salary for hours that the employee has not worked, up to a maximum of £2,500 per month.
The Furlough Scheme has been extended for up to 30 September 2021, for employers who are struggling to make salary payments while they are getting their normal operations back on track.
For more information on the Coronavirus Job Retention Scheme, you can visit https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme.
As the Government begins to remove their support, manufacturers may find that they have to make payments towards any loans they took out during the various National and Local Lockdowns. If businesses are struggling to make repayments, they may run the risk of insolvency proceedings being brought against them.
Whether banks or suppliers, manufacturers often have a lot of creditors. The number of creditors will have no doubt increased during the Coronavirus pandemic as businesses try their best to stay afloat.
Generally, if a business is unable to pay those debts which exceed £750 within 21 days of that debt falling due, creditors may be able to commence insolvency proceedings against that business.
However, due to COVID-19, the Government placed a moratorium on insolvency proceedings in which creditors would be restricted from presenting a petition for the winding-up of a company, unless:
The stay on insolvency proceedings has since been extended until 30 June 2021, therefore, no creditor will be able to present a winding-up petition against a manufacturer until after 30 June 2021, unless they can demonstrate that COVID-19 has not had a financial effect on the company, or that the problems would have been present even if COVID-19 had no financial effect on the business.
Where a manufacturer is having problems paying their creditors, there are a number of measures they can take in order to avoid creditors bringing proceedings to liquidate the company.
The most common way to allow a business more time to pay its debts is by entering into a CVA. A CVA is an agreement between a company and its creditors to suspend payments and freeze interest so that the company may pay back its debts over 3 to 5 years and often at a discounted rate.
If a CVA is not able to be agreed upon, pre-pack administration may be appropriate.
Pre-pack administration provides continuity for the company with minimum disruption and helping to maintain the goodwill of the business. In short, this involves the appointment of an administrator to run the business and the selling of assets or business in order to keep the company in business.
If successful, the company will be able to continue trading, often under different ownership.
If the company is struggling in making payments, the members of that company may decide to voluntarily place the company into liquidation. This is often the worst-case scenario for a business that is struggling with cash-flow issues.
Where a company is placed into voluntary liquidation, the company effectively ceases trading and sells its business and assets in order to pay off its creditors.
In all of the above scenarios, the earlier a business recognises the threat of insolvency, the more options the business will have to avoid insolvency.
For more information contact Michael Chambers in our Manufacturing & Engineering department via email or phone on 0333 207 0740. Alternatively send any question through to Forbes Solicitors via our online Contact Form.