The following article was original published by W Denis Credit Risks Ltd, March 2021 here.

It has been widely forecast that there will be a wave of corporate failures as one of the economic consequences of the pandemic. It hasn’t happened yet, and the view from the credit insurers is that it is the Government support schemes that have helped to stave this off. So when will businesses start to run out of cash?

Here we look at the key schemes and the current post budget timetable (or Roadmap), with the next key dates being the end of March and June. No business providing goods and services on credit can afford to be complacent, so remember, we‘re here to help and can provide:

  • Credit Insurance cover – from whole of ledger to catastrophe or single invoice cover
  • For clients refinancing, cover against calling of personal guarantees for Directors.

The Furlough scheme – Covering 80% of salaries (to a maximum of £2,500 per month) now extended to September 2021 but with a taper.

Moratorium for creditors.  This was part of the Corporate Insolvency and Governance Act, which came into force in June 2020. It suspends winding up petitions, provides business with a short period where they can be protected from creditors, and allows Directors to trade an insolvent business. This expires at the end of March.

VAT Deferment – VAT payable March to June 2020 could be deferred, but should be paid by the end of March this year. There is a second potential period (on application) which could further extend repayments to June.

CBIL/BBIL’s. CBIL loans came in in March 2020, with the smaller BBIL loans coming in in May of the same year. Both are Government backed (80%), and both are repayable over 10 years, but with the first 12 months interest free. Businesses who don’t want to pay interest will be starting to look to repay CBIL’s from this month on, and both schemes expire at the end of March. However, they are being replaced by the recovery loan scheme, which comes into force on the 6th April and runs to December. This is for loans of £25K to £10M, again 80% backed by the Government. No mention of being interest free, and refers for the first time to invoice discounting and factoring being included.

VAT Reduction – from Business in hospitality and tourism, VAT has been reduced to 5% and this has been extended through to September, rising to 12.5% for a further 6 months.

Business Rates Holiday – For businesses in hospitality, leisure and retail, this has been extended to the end of June, with the remainder of the year discounted by 2 thirds.

Trade Credit Support Scheme  – Government is backing the trade credit insurance market, agreeing to take 90% of losses from April last year. The quid pro quo is that insurers relax their underwriting rules in respect of businesses affected by the pandemic. This expires in June 2021, though a further extension is possible. 

One other thing to bear in mind is the return of `crown preference’. This means that the Government (for VAT, NI Contributions) now ranks ahead of other creditors in an insolvent estate.  This will mean that payments to trade creditors are even less likely.  There is also promised legislation to change the ease of `pre pack’ insolvencies, though this has not yet gone through parliament.

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