BBLS and CBILS: a safe path through the pandemic or a route to insolvency?

Statistics from Q4 2020 indicate that retailers have faced significant hardships as a result of the nationwide lockdowns which were introduced to help supress the spread of Covid-19. As footfall plummeted and shopping habits shifted significantly towards safer online options, retailers have struggled to survive.

News reports have shown that it hasn’t just been smaller, independent retailers who have suffered; well-established names have also succumbed as the implications of lockdown became apparent. As our high streets begin to emerge from lockdown over the coming months, some key names will be missing: department store Debenhams will be a significant loss to many shopping districts, as will outlets under the Arcadia Group brands such as Top Shop, Top Man and Miss Selfridge.

Like the Arcadia Group, Debenhams entered into administration when faced with no other alternative. There was a glimmer of hope when Boohoo Group, the online retailer, bought elements of the Debenhams business from its administrators but, for the high street, that hope was short lived. The deal with Boohoo included only the Debenhams brand assets and website operations, meaning its high street presence would be committed to the history books as it makes the move to an online only operation. The ups and downs of the business over recent years had been well reported but few would have predicted such an outcome, certainly at such a pace, before the Covid-19 crisis erupted.

To see them through the uncharted territory of a pandemic, many smaller retailer businesses are likely to have made use of government backed schemes. The Bounce Back Loan Scheme (“BBLS”) and the Coronavirus Business Interruption Loan Scheme (“CBILS”) were introduced to provide financial support to businesses which were adversely affected by the impact of the virus. In the form of term loans, overdrafts and the like, businesses could borrow up to £50,000 under the BBLS, while larger figures of up to £5 million were available under the CBILS.

Both schemes have proved incredibly popular, but it is widely expected that they will play a key role in many insolvency cases over the coming months. Recent press reports mention that HMRC sent a first batch of 24,000 letters last year, followed by a second batch of 11,000 letters, to businesses seeking confirmation that they were eligible for such assistance. Recipient businesses had 21 days to respond; failing to do so would see them barred from applying for future support.

By restricting the presentation of winding up petitions and suspending statutory demands to ease creditor pressure, the Corporate Insolvency and Governance Act 2020 is one reason that an increase in the number of insolvency cases has not materialised. However, the protection afforded many businesses by this act comes to an end on 31 March 2021. This deadline has been extended and may be extended again, but once the suspension is lifted it is expected that a large backlog of petitions will develop driving more businesses along a similar path to that taken by Debenhams and the Arcadia Group.

At the end of March 2021, businesses will have to account for VAT receipts between 20 March 2020 and 30 June 2020. However, following the introduction of the new VAT deferral payment scheme, businesses are no longer required to pay the deferred VAT in full on or before 31 March 2021, but can pay their deferred VAT in equal instalments, interest free.

Finally any businesses considering formal restructuring options such as administration in the hope that stakeholders will be able to repurchase the business free of existing debts will soon have their options significantly reduced. The draft Administration (Restrictions on Disposal etc. to Connected Persons) Regulations 2021 are due to come into force on 30th April 2021 and will prevent the sale of all, or a substantial part of, a company’s business and assets to connected parties without the consent of the creditors or an independent written opinion. This hot topic will form the basis of a separate publication but, for now, directors need to understand that their options are increasingly more limited.

The Business Recovery Team at The Wilkes Partnership represents decades of experience in the rescue or restructure of businesses. If your business used either the BBLS or CBILS schemes and you now have questions about what happens next, or if the pandemic has raised significant financial challenges for your business, contact David Cleary or John Cooper on 0121 233 4333 or email them at dcleary@wilkes.co.uk or jcooper@wilkes.co.uk.

 

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