The Insolvency Service will be given “beefed up powers” to investigate and sanction directors found to have abused the process. The measures will also give the government agency retrospective powers."

With a wave of looming insolvencies on the horizon, is the UK's economic bubble about to burst?

As we know, 12 months ago the UK government introduced financial support schemes (CBILs, BBLs alongside many other efforts such as VAT payment deferral) in their effort to protect businesses throughout the country from “winding up” when the economy was brought to all but a stand still.

The Bounce Back Loan scheme alone attracted more than 1.5 million businesses to borrow £46.5 billion, with an average loan being highest in London (£33,369) and lowest in Wales (£27,677).

Repayments for those who borrowed under these schemes are due to commence this month and are likely to have a significant impact on business cashflow across the United Kingdom. We thought it would be a great time to revisit our article from July last year in which we looked at this very scenario (Article here - https://www.brealcm.com/credit-control-now-more-important-than-ever).

A recent survey of UK SMEs highlighted that almost half of the business owners claimed they have no intention of repaying their borrowings, with 43% either claiming that they remained financially unable to repay their loans, and 27% of respondents believing that the government will not chase the debts and pursue them (according to the Business Banking Resolution Service).

According to the Financial Times, “UK directors will face bans for avoiding repayment of loans. Ministers will crack down on company directors seeking to dissolve their businesses to avoid repaying creditors in a bid to prevent the loophole being exploited to write-off state backed emergency Covid-19 loans.”

"Directors found guilty of misusing the insolvency process would face sanctions such as a ban from serving as a company director for up to 15 years. The new measures would also prevent directors of dissolved companies from setting up a near identical business."

With the threat of looming insolvencies on the horizon it seems a zero tolerance approach is being adopted or at least that’s certainly what the message appears to be.

The government has also launched a scheme where lenders will proactively and directly inform their customers of “Pay As You Grow” options, providing businesses with the following options:

- Extend the length of the loan from between 6 years to 10
- Make interest only payments for 6 months, with the option to use this up to 3 times throughout the term
- Pause repayments entirely for up to 6 months
There is also the Coronavirus Business Relief Support Scheme, however this scheme requires repayments to start immediately, there is no grace period and it may require director’s guarantee(s).

Utilising the extensions and managing debtors and creditors responsibly will have a significant impact on the potential recovery of many businesses.

As we stated in the article last July, staying on top of debtors or outsourcing the credit control function is an option to assist in easing this issue. With so many potential insolvencies on the horizon it’s highly likely that UK SMEs could be in for a rough ride in the coming months. The best approach is to get familiar with creditors and open up lines of regular communication with customers now, allowing company directors to keep a much needed “close eye” on a company’s cashflow situation.

So, what advice can we offer for business owners concerned at their ability to keep their cashflow afloat over the coming months?

Take stock of your sales ledgers and processes now!

As we’ve previously stated this could just be the deciding factor between a company’s survival or demise.

Breal Credit Management offers pro-active commercial debt recovery solutions and outsourced credit control systems, offering businesses the ideal way to minimise their risk of falling into the sea of impending insolvencies.

If you would like to discuss any aspect of your situation with our expert team, email us at info@brealcm.com and we’ll contact you to arrange a confidential professional assessment of your situation. Alternatively call us on 0330 0430282.

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