By Mr Bankruptcy
17th June 2021
The ban on winding up petitions during the Covid-19 pandemic has been a lifeline for many businesses. Yet, with this ban now due to be lifted at the end of September, are many businesses facing a financial storm they aren’t yet ready to weather?
The impact of banning winding up petitions
The temporary ban on winding up petitions came as a relief to many businesses fearful of how they would pay creditors in the face of a dramatic decline of income. Being able to keep their businesses going during the pandemic has also protected many other jobs and these businesses will be part of the recovery of the economy as lockdown continues to ease.
However, a recent ONS survey on the impact of Covid-19 indicated that almost 15% of UK businesses were at risk of permanently closing by the start of April. With many Covid-19 related financial support schemes coming to an end, creditors will once again start taking action to recover debts, leading to the fear that a dam is now set to burst, releasing a flood of creditor demands and increasing insolvencies and liquidations.
What happens when the taxman calls?
There’s a lot of concern over businesses now facing the reality of debts. The Institute of Directors and R3 (the trade association representing insolvency and restructuring practitioners) have both written to Business Secretary Kwasi Kwarteng to urge him to work with HMRC to help businesses at risk of collapse.
The reason for this focus on HMRC is that they have made themselves the priority ‘creditor’ for the repayment of debt. The fear, therefore, is that HMRC if are quick to demand taxes owed, other creditors will also jump onto the bandwagon and be prompted to demand repayment of their debts. This could put many businesses under pressure to repay debts when their own financial position has improved little, and they are still suffering the effects of extended lockdown and low consumer confidence.
The time to act is now
With creditors looming, there is no escaping the fact that many businesses with debts will face some difficult decisions on how best to protect their long-term viability. It’s not always clear how this can be done and many business owners will be feeling overwhelmed at the thought of what lays ahead when the various government financial support schemes come to an end.
The key is not to avoid or delay making decisions but to seek advice and support as soon as possible in order to take control of your debts.
Non-judgemental advice from James Rosa Associates
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Please be advised that all views expressed in these posts are those of the author and not of James Rosa Associates ltd.