"When restructuring get advice on the position as a whole rather than in isolation, taking into account both corporate and personal implications."
Amy Mehers
In recent months the world has changed more than we could ever imagine, however with Brexit and a cyclical economic downturn looming, was the pandemic the killer blow to an already faltering economy?
Personal insolvency figures were actually down in January 2020, despite pre-Covid day to day challenges. In July 2020, personal insolvencies were still down by 40% compared to July 2019, but is this simply the calm before the storm?
The Government’s response to the pandemic is to provide huge sums of financial support by way of ‘bounce back’ loans and the furlough scheme, creditors have taken steps to help struggling businesses and consumers by offering increased forbearance and payment holidays.
But with public debt exceeding £2 trillion – over 100% of GDP for the first time since 1963 – what will it mean for directors, sole traders and employees as the schemes are slowly withdrawn?
In March 2020, the Government suspended wrongful trading provisions to enable directors to carry on trading without fear of personal liability or prosecution during the ‘Covid period’.
The suspension came to an end on 30th September 2020 and this, combined with growing pressure from creditors, means seeking advice now is crucial.
We know from experience that personal debts relating to business failures are likely to be a common trigger for people seeking advice. This will either be as a result of personal guarantees given to support company lending, or sole traders with liabilities taken to fund their business or unpaid tax, whether it be VAT or Self-Assessment.
Following a recent survey of its members insolvency and restructuring trade association, R3, commented, “It’s not uncommon for a business insolvency to lead to an individual becoming insolvent, especially if the person in question has agreed to take on liability for a business’s debts via a personal guarantee as part of an attempt to turn it around.’’
They continued: “Credit cards, loans and overdrafts are also frequent personal insolvency triggers and are areas where banks, building societies and credit card providers have offered temporary support to consumers in the form of options like mortgage and debt repayment holidays, and interest-free overdrafts.
“These will have allowed people who have been affected by the pandemic some time to adjust, but they are only temporary, and their ending will mean people who haven’t returned to a pre-crisis financial position will struggle, which is why we expect more people to need help and support managing their finances.”
With recent reports suggesting that there are more than 500,000 businesses experiencing significant distress it is time for business owners to look towards the future and make crucial decisions.
Directors are undoubtedly going to be relying on their accountants more than ever, who in turn may recommend an Insolvency Practitioner to provide advice on restructuring. This could lead to personal consequences for Directors and is why we recommend taking advice on the position as a whole rather than in isolation, taking into account both corporate and personal implications.
We, at Leonard Curtis, would advise business owners to be honest about their circumstances and talk to their accountants and in turn, a licensed professional, to understand all the options available. It is usually easier to negotiate terms on a credit card repayment with a high street bank than with other non-mainstream lenders, such as asset based lenders or HMRC.
With our years of experience we know each creditor’s expectations and criteria for accepting proposals ,so it is vital you speak to a professional before making any decisions. However complex the situation - and regardless of the amount owed - our advice to individuals is always simple and non-judgemental.
We can’t stress how important it is to tackle any debt issues as soon as possible, especially when it relates to your personal circumstances. Most cases arise by either failing to recognise a problem or making bad decisions when it is recognised. And, by working in partnership with other divisions of the Leonard Curtis Business Solutions Group and the client’s wider team of advisers, we provide a support network for future planning both as an individual and a corporate.
