United Kingdom


Author: William Howard/Alexander Cohen-Santi (Solicitors, UK) Contact email: will.howard@traverssmith.com/alexander.cohen-santi@traverssmith.com

Overview of legal measures as of 17 April 2020 in response to the coronavirus. For up-to-date information relating to the UK jurisdiction, please visit: https://www.traverssmith.com/knowledge/knowledge-container/covid-19-new-uk-government-assistance-available-to-businesses/

Please note: due to the extraordinary situation, the legislation is in continuous state of evolution and may change very fast and this page is only up-to-date as of 17 April 2020.

Introduction

The UK Government has announced an unprecedented stimulus package to help support businesses in response to the COVID-19 outbreak. These measures, originally announced by the Chancellor of the Exchequer in his budget on 11 March 2020, have rapidly expanded in the past days and weeks. The scenario is subject to constant (and rapid) change and the measures appear to have unlimited scope with both the UK Government and Bank of England encouraging businesses to open up a dialogue with them before making any long-term negative decisions. As stated above, the legislation and government measures is moving very fast and the information on this page relative to the UK is up to date as at 17 April 2020.

This page provides a summary of the key measures to help businesses which were announced by the UK Government as part of its response to the COVID-19 outbreak.

For up to date information relating to the UK jurisdiction, please visit: https://www.traverssmith.com/knowledge/knowledge-container/covid-19-new-uk-government-assistance-available-to-businesses/


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With a consistent focus on understanding and delivering on what our clients want, we get straight to the point of the commercial challenges they face and make it our business to understand their industries, their practical challenges and their principal goals for the future.


  1. JOB RETENTION SCHEME

1.1 Scheme details

Any entity (of all sizes and in all sectors) with a UK payroll scheme on or before 19 March 2020 will be eligible for the Coronavirus Job Retention Scheme. The scheme will extend to:

  • Salary costs from 1 March 2020 and initially to 30 June 2020 although employers can use it anytime in this period (the scheme was originally due to run until 31 May 2020 but has since been extended until 30 June 2020, and may be extended further if necessary).

  • All workers who are paid through payroll as at 19 March 2020

(i) this can include not just employees but also workers, office holders, salaried LLP members, directors and apprentices; and

(ii) can include workers who have left the business since 28 February 2020 for whatever reason, not just redundancy, or been placed on unpaid leave.

  • While workers can be furloughed more than once, they must be furloughed for at least three weeks each time (the current maximum term is to 30 June 2020 although the UK Government has said it may extend this period if necessary, with no limit applied to the funding available).

  • Employers will need to be able to demonstrate if asked that the reason for the furlough was related to COVID-19.

The UK Government has said it will retain the right to retrospectively audit all aspects of the scheme (including the extent to which the employee might have worked for the employee during the period) with scope to claw back fraudulent or erroneous claims. Accordingly, employers will need to keep records of communications with employees about furlough, the wages paid and associated wage costs. The communication with employees about furlough must be kept for five years.

Please see our Q&A on the Coronavirus Job Retention Scheme for further details by clicking here, and further details from the UK Government here.

1.2 Eligibility

Any entity (of all sizes and in all sectors) with a UK payroll scheme on or before 19 March 2020 will be eligible for the Coronavirus Job Retention Scheme. The scheme will extend to:

  • Salary costs from 1 March 2020 and initially to 30 June 2020 although employers can use it anytime in this period (the scheme was originally due to run until 31 May 2020 but has since been extended until 30 June 2020, and may be extended further if necessary).

  • All workers who are paid through payroll as at 19 March 2020

(i) this can include not just employees but also workers, office holders, salaried LLP members, directors and apprentices; and

(ii) can include workers who have left the business since 28 February 2020 for whatever reason, not just redundancy, or been placed on unpaid leave.

  • While workers can be furloughed more than once, they must be furloughed for at least three weeks each time (the current maximum term is to 30 June 2020 although the UK Government has said it may extend this period if necessary, with no limit applied to the funding available).

  • Employers will need to be able to demonstrate if asked that the reason for the furlough was related to COVID-19.

The UK Government has said it will retain the right to retrospectively audit all aspects of the scheme (including the extent to which the employee might have worked for the employee during the period) with scope to claw back fraudulent or erroneous claims. Accordingly, employers will need to keep records of communications with employees about furlough, the wages paid and associated wage costs. The communication with employees about furlough must be kept for five years.

Please see our Q&A on the Coronavirus Job Retention Scheme for further details by clicking here, and further details from the UK Government here.

2. CORONAVIRUS BUSINESS INTERRUPTION LOAN SCHEMES

2.1 Scheme details

Depending on the prospective borrower's annual turnover, it can apply for loans under either the:

  • Coronavirus Business Interruption Loan Scheme ("CBILS") for businesses with an annual turnover of up to £45 million (launched on 23 March 2020); or

  • Coronavirus Large Business Interruption Loan Scheme ("CLBILS") for businesses with an annual turnover of over £45 million (to be launched 20 April 2020).

Businesses with turnovers of more than £500 million were originally not eligible for CLBILS, so the removal of this cap (announced on 16 April 2020) should ensure more firms are able to benefit from Government support, in particular larger companies (often described as "the stranded middle") unable to access the CCFF scheme outlined at section 3 below because they do not possess an investment grade credit rating.

Loans (be they overdrafts, term loans or other forms of facilities) can be made under (i) the CBILS for up to £5 million and (ii) the CLBILS for up to £25 million (or £50 million, for businesses with a turnover of over £250 million). They can be used to facilitate new lending and to a limited extent (up to 20% of each lender's annual portfolio) to refinance existing debt.

The UK Government will:

  1. under both the CBILS and CLBILS, provide the lender with a guarantee for 80% of the outstanding loan (subject to a per-lender overall cap), meaning it is more likely to be approved by the lender; and

  2. under the CBILS only, pay the interest for the first 12 months (although under CLBILs, the Government guarantee extends to interest and fees).

CLBILS will operate in a similar way to the pre-existing CBILS (other than the thresholds, loan quantum and lack of a 12-month interest holiday). The British Business Bank has posted a table comparing the two schemes here. A key difference is that CLBILS is only available to borrowers that are unable to secure regular commercial financing (a condition recently removed from the smaller CBILS scheme as a result of its detrimental impact on speed and ease of access to cash under the scheme).

The tenor of such loans under CBILs is (i) up to six years for term loans and asset finance and (ii) up to three years for overdrafts and invoice finance. Under CLBILs, the maximum repayment term is 3 years.

It is important to note that the Government guarantee is only to the lender, so the borrower remains fully liable to repay 100% of the debt (including any interest). However, borrowing under the CBILS is likely to be particularly attractive to businesses facing a short-term cash-flow issue in view of the interest free element.

It is expected that businesses will be able to borrow more than once under the schemes provided they still satisfy the eligibility criteria (presumably subject to the overall caps set out above). The schemes effectively replace the Enterprise Finance Guarantee Scheme ("EFG") which has been temporarily suspended for new applications. Businesses are asked to speak to their preferred lender if they already benefit from an existing EFG and wish to apply for additional finance under the schemes.

Applications: The schemes are operated through accredited lenders (including most high-street banks) of the British Business Bank. Initial experience with the CBILS has shown that eligibility criteria for the scheme are complex and banks are taking time to operationalise it.

Security: The requirement for a borrower to give credit support will depend on each lender's policies. As a change to the original position when the scheme was launched, the CBILS can now support lending for all facilities (including those over £250,000) to smaller businesses even where a lender considers there to be sufficient security, making more businesses eligible to receive the business interruption payment. Where there is sufficient security available, it is likely that the lender will take such security in support of a CBILS facility. Lenders will not be able to use anyone's primary residential property as security under the loan and lenders cannot require personal guarantees for (i) more than 20% of the loan or (ii) loans under £250,000.

Fees: While participating in the schemes, lenders will be required to pay a fee to the UK Government to access the guarantee. However businesses will not be required to pay any such fee and the UK Government will (for the CBILS only) cover any lender-levied fees, except that fishery, aquaculture and agriculture businesses may not qualify for the full fee payment.

Issues for existing borrowing: Whilst the schemes will offer welcome liquidity to companies suffering financial stress, the incurrence of additional debt may be restricted under existing debt facilities. Careful attention should be given to debt incurrence capacity under any such arrangements. Waivers may be required (potentially on a tight timetable) to avoid triggering a default entitling existing lenders to accelerate their debt and enforce security. Clearly, the greater the number of existing lenders, the more logistically challenging this will be. It may not be an issue where the scheme partner bank is already the business' main lender. Ultimately, existing lenders may be comfortable with their borrower incurring unsecured loans in reliance on the government guarantee; the alternative (enforcement leading to an insolvency process) is typically destructive of value as compared to a consensual solution.

Issues for directors: As well as satisfying the usual corporate benefit rules which apply to every company when taking on debt or granting guarantees/security, when considering whether to borrow in circumstances of financial distress, directors should be mindful of their duties to creditors and, in particular but subject to the proposed changes detailed at section 9 below, the need to avoid wrongful trading. Company directors should have an objectively justifiable reason for taking on new debt. This involves having a clear understanding of the financial position of the company and a plan for avoiding an insolvency, often with the benefit of professional advice. It is important to consider whether there is a reasonable prospect that taking on new debt, together with any planned capital raising and/or cost-saving measures, will enable the company to survive. Whilst the plan need not be 100% certain, it is important that it is not fanciful or remote. This same analysis also applies to the CCFF scheme outlined at section 3 below.


2.2 Eligibility

Decision-making on whether a business is eligible for CBILS or CLBILS is fully delegated to the accredited lenders, but the basic eligibility criteria are:

  • the borrower being UK based (further details as to what this means in practice are awaited) with 50% of its turnover coming from trading activity;

  • the funds being applied for business purposes and used to support primarily trading in the UK;

  • the borrower (which can include sole traders / freelancers so long as the business is operated through a business account) having an annual turnover of no more than £45 million (for CBILS) or more than £45 million (for CLBILS). In assessing this test:

(a) the qualifying period will be the 12 months preceding application;

(b) where a borrower is part of a corporate group (i.e. controlled on either a legal or de facto basis) then the turnover test will be applied to that wider corporate group rather than just to the borrower – it is expected that this will include global rather than just UK turnover but further clarity is awaited; and

(c) where the borrower is a portfolio company of an investment fund, the turnover test is now expected to be calculated on a business by business basis, following a UK Government announcement on 16 April 2020 (so that portfolio companies are not be disqualified by virtue of needing to combine the turnover of all portfolio companies majority-held by a single sponsor) - a welcome announcement as we understand that many lenders were aggregating the turnover of all portfolio companies majority-held by a single sponsor;

  • the borrower will need to self-certify that it has been adversely impacted by COVID-19;

  • the borrower not having used the Bank of England’s Covid Corporate Financing Facility (see section 3 below);

  • the borrower not being a: (i) bank, building society, insurer or reinsurer (excluding insurance brokers); (ii) public-sector body or (iii) state-funded educational establishment;

  • the borrower having a borrowing proposal (including evidence normally required by that lender for approving a loan, such as management accounts, forecasts, business plans etc.) which, were it not for the current pandemic, would be considered viable by the lender, and for which the lender believes the provision of finance will enable the business to trade out of any short-to-medium term difficulty; and

  • for the purposes of state-aid rules, the borrower not being an "undertaking in difficulty" as at 31 December 2019 (including, for established businesses, the borrower not having accumulated losses greater than half of its subscribed share capital as at that date).

While they still may be eligible, fishery, aquaculture and agriculture businesses may not qualify for the full interest and fee payment exemption referred to above.

Further details from the British Business Bank on the CBILs are available here and on the CLBILS here.


3. COVID CORPORATE FINANCING FACILITY ("CCFF")

3.1 Facility details

From 23 March 2020, the Bank of England (the "BoE") is able to lend to large corporates by buying commercial paper (effectively an unsecured short form unsecured debt instrument). Corporates are expected to be able to borrow up to £1 billion each, depending on credit ratings and subject to constant review, and will need to borrow a minimum of £1 million and in multiples of £100,000.

Some of the key terms of the commercial paper include that:

  • the maturity of the commercial paper will be one week to twelve months;

  • in terms of pricing, the BoE will purchase the commercial paper on terms comparable to those prevailing in the markets before the economic shock from COVID-19, being more precisely:

  1. for primary market purchases, it will purchase commercial paper at a minimum spread above a reference rate, based on the current sterling overnight index swap (OIS) rate. The respective reference OIS rate will be determined at 09:45 on the day of the operation;

  2. for secondary market purchases, it will purchase commercial paper at the lower of amortised cost from the issue price and the price as given by the method used for primary market purchases as set out above. The BoE will also apply an additional small fee (currently set at 5 bps and subject to review) for use of the secondary facility, payable separately; and

  3. the respective spreads are subject to review by the BoE, but by way of illustrative example as at 23 March 2020 these were 40 bps for a relevant A2/P2 short-term credit rating (see 'Eligibility' section below regarding minimum credit ratings);

  • the facility is available for an initial 12 months, and at least 6 months' notice will be given before closing it;

  • the commercial paper can be in a simplified version based on the ICMA standard, but while other simplified versions may be considered they cannot have any non-standard features (such as extendibility or subordination);

  • if the issuing entity is does not have an investment grade rating and is not the primary entity within the group, that primary entity may be required to give a guarantee (with a foreign 'capacity and authority' legal opinion if it is a foreign company);

  • if successful, the borrower will be required to enter into a confidentiality agreement and agree to the CCFF terms and conditions, including certain standard warranties and undertakings, available here; and

  • the commercial paper will be issued directly into Euroclear and/or Clearstream.

This facility therefore is designed to provide companies access to pre-crisis terms of debt (rather than anything more favourable – for example there is no interest holiday akin to the CBILS discussed above). Whilst there is a degree of uncertainty in terms of likely funding costs, clearly the objective here is to help systemically important businesses (rather than for the BoE to profit from this scheme).

If a business considers itself eligible and wishes to borrow funds under this scheme then they should consider approaching their current bank (or, if their current bank does not offer commercial paper then select a bank that does from the link available here).

While the BoE will announce (on a daily basis) the aggregated uptake of the CCFF, it will not publicly disclose which individual companies are participating.

Although the CCFF will offer welcome liquidity to eligible companies, important considerations apply for a company taking on new debt as discussed in section 2 above.

3.2 Eligibility

To be eligible for the CCFF:

  • The borrower will need to make a "material contribution to economic activity in the United Kingdom".

  1. This should be satisfied if (i) it is a UK-incorporated company (regardless of whether it has a foreign parent) with genuine business in the UK, (ii) it has significant employment in the UK, or (iii) its headquarters are in the UK.

  2. The BoE will, in addition, take into consideration the borrower's UK revenues, UK customer base and number of operating sites in the UK.

  • The borrower should be able to "demonstrate they were in sound financial health prior to the shock".

  1. The BoE will accept borrowers with the following credit ratings (from at least one of S&P, Moody’s, Fitch or DBRS Morningstar) as at 1 March 2020:

· short-term credit rating of at least A-3 / P-3 / F-3 / R-3; or

· long-term credit rating of at least BBB- / Baa3 / BBB- / BBB low.

  1. If the borrower does not have a short-term or long-term credit rating as at 1 March 2020 then the BoE will need to "assess that the issuer is of equivalent financial strength" in order to give it access to the facility. There are two ways for borrowers to show this: either (i) be internally rated as investment grade as at 1 March 2020 by multiple banking counterparties as shown on a central consolidated list (created for this purpose and maintained by Credit Benchmark) or (ii) get a form of retrospective "point-in-time" credit rating as at 1 March 2020 from one of the major credit rating agencies.

Based on this eligibility criteria, the CCFF would be more suitable for larger companies with more sophisticated corporate treasury operations and investment grade standing. The CBILS and CLBILS (discussed in section 2 above) are likely to be a more suitable option for smaller, unrated, companies unfamiliar with commercial paper issuance.

  • Banks, building societies, insurance companies and other financial sector entities regulated by the BoE or the FCA (including any companies within groups which are predominantly in such business) will not be eligible. "Leveraged investment vehicles" (although no details are available yet as to what that includes) and public bodies or public undertakings (where the UK or other EU state can exercise dominant influence) will also not be eligible.

  • There will be no requirement for the borrower to have previously issued commercial paper.

Further details are available here.

4. TAX DEFERRAL

4.1 VAT

The UK Government has announced that all businesses in the UK are able to defer their VAT payments for the rest of this quarter (applicable from 20 March 2020 to 30 June 2020) until the end of the 20/21 tax year. No application will be required, and any businesses wishing to defer do not need to tell HMRC prior to doing so. Businesses wishing to defer should temporarily cancel any direct debits they have set up for the payment of VAT payments to HMRC. Businesses should continue to file their VAT returns by the relevant date as normal.

The Government estimates that this will be equivalent to a direct injection of £30bn of cash into the economy.

4.2 General

The UK Government has confirmed that all businesses in financial distress, and with outstanding tax liabilities, will be able to receive tailored support from the HMRC through the "Time To Pay" service.

While these arrangements are agreed on a case-by-case basis and it is difficult to apply general principles to what is and is not possible, we understand that HMRC has already been very receptive to requests for deferrals of tax payments.

Specific circumstances can be discussed with HMRC using their new COVID-19 dedicated helpline (0800 024 1222 between 8am-8pm on Monday to Friday and 8am-4pm on Saturday). Examples of arrangements that HMRC may discuss with a business are:

  1. agreeing an instalment arrangement; or

  2. cancelling penalties and interest where there are administrative difficulties in contacting or paying HMRC immediately.

In relation to instalment arrangements, HMRC will assess the income, expenditure and assets of the taxpayer and what is being done by the business to get their tax payments back in order. HMRC will then determine whether the business should be able to pay immediately or not, and if not, the timeframe that the business needs to get its payments back on track. More in depth questions may be asked by HMRC where a business has previously been granted time to pay, and in complex situations HMRC may ask for evidence before making a decision. Businesses should continue to file all relevant returns unless otherwise agreed with HMRC.

5. BUSINESS RATE RELIEF

5.1 Relief details

All retail, hospitality and leisure businesses as well as nurseries in England will benefit from a 12-month business rates relief for 2020/2021. While it has a limited sectoral scope, the relief is likely to be popular for eligible businesses which have long cited business rates as being an issue even when the economy is strong. There is no rateable value limit on this relief and will therefore apply to all premises in those sectors.

It will apply to the next council bill in April 2020 and while most businesses are not expected to need to take any action, some local authorities have decided to operate an application process. The UK Government has said that local authorities will reissue bills where relevant "as soon as possible" (having now been funded by central Government).

5.2 Eligibility

To be eligible, the business must:

  • be based in England; and

  • be an occupied property wholly or mainly used as a shop, restaurant, café, drinking establishment, cinema, live music venue, for assembly and leisure, hotels, guest and boarding premises, self-catering accommodation or a nursery (being those on Ofsted’s Early Years Register and who wholly or mainly provide the Early Years Foundation Stage).

This is a test on use rather than occupation; businesses which are occupied but not wholly or mainly used for the purposes listed above will not qualify for the relief. The UK Government has stated that businesses which have closed temporarily due to the UK Government's advice on COVID-19 should be treated as occupied for the purposes of obtaining the relief.

Further details are available from the UK Government for retail, hospitality and leisure businesses by clicking here (including a non-exhaustive list of those businesses the UK Government considers will benefit from the relief which they are regularly reviewing) and for nurseries by clicking here (including details of properties that will benefit from the relief).

6. GRANTS FOR SMALL BUSINESSES


The UK Government will provide two grants to small businesses based on their business rates banding:

  1. Small Business Grant: £10,000 to all businesses regardless of sector currently eligible for small business rate relief (rateable value less than £15,000) or rural rate relief (e.g. being the sole post office in a small village). This is expected to cover 700,000 of the country's smallest businesses.

  2. RHL Business Grant: £25,000 to all retail, hospitality and leisure businesses operating from smaller premises, with a rateable value between £15,000 and £51,000.

The payment will be made to the person who (according to the billing authority's records) was the ratepayer for the property as at 11 March 2020. In a shared office arrangement, a more typical arrangement is that the landlord charges a rent inclusive of rates (to the extent that they are payable, as many small businesses in particular already benefit from reliefs). In this case, it's likely that the landlord will receive the grant but politically is likely to be under pressure to share the benefit of this with the actual occupants in proportion to their rental contributions.

These grants will not be available for properties occupied for personal use (e.g. private stables or beach huts) or for recipients who are in liquidation or dissolved as at 11 March 2020.

While most businesses are not expected to need to take any action to apply for the Small Business Grant, we understand some local authorities have decided to operate an application process. Businesses are expected to need to actively contact their local authorities for the RHL Business Grant.

Further details are available here.

7. STATUTORY SICK PAY

7.1 Scheme details

As background, businesses are required to pay a minimum amount of Statutory Sick Pay (currently £94.25 per week) for employees who are off sick for up to 28 weeks. Statutory Sick Pay is currently payable from the fourth day of sickness absence. As a response to COVID-19, the UK Government has introduced legislation to change the rules with effect from 13 March 2020 so that employees that self-isolate are covered by Statutory Sick Pay. The UK Government has also introduced further legislation requiring Statutory Sick Pay to be paid from the first (rather than fourth) day of absence for any COVID-19 related absence, with retrospective effect from 13 March 2020.

Under the new UK measures, certain SME businesses will be able to claim back Statutory Sick Pay paid to employees for sickness absence due to COVID-19, up to a maximum of two weeks per employee (up to £188.50 per eligible employee).

It will not cover any enhanced sick-pay offered (contractually or otherwise) by employers, and businesses are still required to fund the up-front cost of such sick-pay (potentially causing painful cash-flow issues in the current climate) with the repayment mechanism yet to be developed. However, it could be especially valuable to low-skilled workforce-heavy businesses if 20% of the workforce is off sick at any one time (as the Prime Minister earlier warned might be the case).

7.2 Eligibility

To be eligible to claim back the Statutory Sick Pay:

  • the employer must be UK based and have had fewer than 250 employees on 28 February 2020 (although the CBI is lobbying the UK Government to extend the relief to all employers). This is likely to be the key eligibility criteria for most businesses, and further details are awaited to understand amongst other things:

  1. to what extent corporate groups will be treated as being a single employer – this is highly expected to be the case; and

  2. whether portfolio companies of investment funds will all be treated as belonging to the same corporate group – it is hoped that it will not (otherwise almost all PE-backed portfolio companies will be ineligible) but there has been no indication given by UK Government as yet;

  • the employer must maintain a record of staff absences (although no doctor note is required) and payments of Statutory Sick Pay;

  • the employee is eligible for Statutory Sick Pay and is off work due to COVID-19; and

  • the payment must be made on or after 14 March 2020.

8. PROTECTION FROM EVICTION


Mirroring measures previously announced for domestic tenants, the UK Government has confirmed that landlords of commercial premises will be prevented from taking steps to forfeit and recover possession of those premises if a tenant fails to pay rent.

The Coronavirus Act 2020 (the "CA") provides protection to business tenants for non-payment of yearly rent, service charges, insurance contributions and other sums due under a business tenancy from 25 March 2020 until 30 June 2020. This does not affect enforcement action already underway although the arrears subject to the protection of the CA do not have to relate to the March 2020 quarter alone.

The leases benefiting from this protection are those business leases to which Part 2 of the Landlord and Tenant Act 1954 apply. The Ministry of Housing, Communities and Local Government has clarified this by stating that the protection against forfeiture in the CA is intended to apply to all commercial leases. It has not clarified whether this applies to commercial leases where the tenant is not in actual occupation, but we expect that to be the case (otherwise where a commercial tenant has a sub-tenant then the landlord could circumvent the CA by forfeiting the intermediate commercial lease, thereby terminating an occupational sub-tenant, subject to any application for relief).

A landlord can still forfeit and recover possession of premises as a result of other breaches of lease, for example, failure to comply with 'keep open' clauses, insolvency defaults or breaches of repair covenants. The landlord's rights to do so depend on the drafting of the particular lease, and remain subject to the statutory right of tenants to apply to the courts for relief.

The CA does not protect business tenants from the corresponding debt claim that a landlord will have where rents aren't paid under a lease (together with any interest or penalties due thereon which will be dictated by the terms of the lease), or the other remedies of a landlord such as recourse to rent deposits, guarantees and their rights under the Commercial Rent Arrears Recovery statutory regime. This means that, while businesses that go into arrears on their rent will be relieved that they cannot be evicted in the short-term, they will need to repay the arrears in full plus accrued interest once the protection is lifted (be that 30 June 2020 or later if the UK Government extend the protection) to avoid facing eviction at that point. For this reason, we continue to recommend that (and we are increasingly seeing in practice) landlords and tenants enter into discussions regarding rent suspensions and repayment terms, and document what is agreed to avoid later disputes.

While private homeowner landlords on buy-to-let mortgages will benefit from recently-announced payment holidays on their mortgages, there are not currently any similar proposals in respect of mortgage payments on commercial property. While this may concern commercial landlords who expect certain tenants will soon fall into arrears, the UK Government has confirmed that it is actively monitoring the impact on commercial landlords' cash flow and this position might change. For loans falling under FCA regulation, it has issued guidance that no responsible lender should be considering repossession as an appropriate measure at this time and should grant payment holidays where needed as a result of COVID-19. Where appropriate, landlords should enter into discussions with their lenders in conjunction with any concessions granted to their tenants.

Further details as to the considerations that either landlords or tenants will have during this time are available on our website here and further details from the UK Government on the protection from eviction are available here.

9. CHANGES TO THE INSOLVENCY REGIME


The UK Government announced on 28 March 2020 that it plans to introduce measures to improve the UK's insolvency system in response to the COVID-19 situation. It noted that its overriding objective is to help UK companies that need to undergo a financial rescue or restructuring process to keep trading. The intention is to give these companies extra time and space to "weather the storm" and to be ready when the crisis ends, whilst ensuring that creditors get the best return possible in the circumstances.

Further details are awaited on what the full measures will include, but the UK Government has announced that they will include:

  • A temporary suspension of the wrongful trading provisions for company directors to remove the threat of personal liability, applying retrospectively from 1 March 2020. It is not clear yet whether there will be any criteria for the use of this suspension. The UK Government specifically noted that all other "checks and balances that help to ensure directors fulfil their duties properly will remain in force". In particular, we expect that this means that there will be no change to directors' duties more broadly (including the obligation to act in the best interests of the creditors when a company is insolvent) or to the fraudulent trading regime. The risk of disqualification or other actions against directors for breach of duty or misfeasance will therefore remain.

  • New rules to ensure that companies undergoing a restructuring can continue to get hold of essential supplies (such as energy, broadband and raw materials). It is unclear what the intention is here but it might involve some sort of moratorium or a prohibition on ipso facto clauses (i.e. those where an insolvency related event allows one party to terminate or modify the operation of the contract, or provides for this to occur automatically) for companies facing issues as a result of COVID-19.

The UK Government has also indicated that it intends to bring in new legislation to implement changes to corporate insolvency that it had previously consulted on in 2018 (including looking at (i) a new standalone moratorium preventing creditor enforcement action being taken against a company while it considers options for rescue and (ii) a new court-approved restructuring plan put to and approved by creditors which would be binding on all classes of creditors, regardless of how they voted).

No further details are yet available, but we will continue to monitor the situation as it develops.