With cashflow tight and the outlook uncertain many businesses will be cancelling direct debits and holding on to cash. The questions you’ve been asking include:

Can customers freely cancel their contracts with me?

This will depend on the contracts between you. You’ll need to review them to see what the grounds for termination are. Many contracts include a termination for convenience clause allowing parties to simply terminate on notice. If these are invoked, there’s little you can do. In other cases, a customer can only cancel if you’ve done something wrong (for default). If you’ve not been able to honour a contract due to Covid-19, you or your client may terminate for force majeure.

What is force majeure?

Simply put, force majeure is a contractual get out of jail clause that can be used when it becomes impossible to perform a contract because of something extraordinary and unforeseeable. Not every contract includes one. Not all of them cover pandemics. So again, you’ll need to review the contracts closely. If there is a force majeure clause, check whether the facts in your situation will satisfy the definition. Consider also the mechanisms used to put it into effect correctly and what the consequences are (for example, suspension or termination).

Watch out for parties using force majeure clauses incorrectly as this could give rise to a case for wrongful termination and possible damages. The legal doctrine of frustration may also have a part to play here. Force majeure and frustration can be complex and you may wish to seek legal input when you are facing these issues. We’d be happy to talk.

What if the contract is still live but customers are not paying?

In this case, our best advice is to speak to your customers and agree a sensible plan for seeing your relationship through the Covid crisis. As an example, we’re seeing payment plans become increasingly popular. These allow you to spread out monies owed under a contract over a longer period of time. It’s worth noting that a payment plan is a variation of contract so be careful to put it in writing. You could think about how long the payment plan will run for and the frequency of payments. For example receiving smaller amounts weekly than a large sum monthly or quarterly. Think also about inserting review milestones, about making it clear that this is a temporary arrangement and stating that you are not waiving or varying your other rights under the contract. You may wish to re-negotiate other aspects of the contract as well as payment. Again, it’s sensible to put this all in writing and get legal input to make sure you’re doing it right.

Is it worth suing for unpaid debt?

There is no question that the courts service will be disrupted by the Covid crisis yet it’s a myth that all the courts have been closed.

The County Court Money Claims Centre remains operational and can be used to obtain a default or summary judgement (“a CCJ”) against someone but only in the clearest circumstances. If the debtor disputes your invoice, your claim will come off the rapid-track and you could be waiting a long time to have your case heard. The High Court has suspended making any compulsory debtor-company winding up orders for three months. Of course, Courts should anyway be a last solution (and are often the least rewarding).

Wise businesses who find themselves under pressure from non-payers might think about protecting their position by issuing proceedings (though the court fees for doing so can be prohibitive), or a statutory demand, to protect their position but otherwise seeking a negotiated settlement. If your debt is coming up to 6-years old, you should be thinking about issuing protective proceedings anyway.

Don’t forget that Alternative Dispute Resolution including Mediation (i.e. not involving the Courts) can be a more swift and satisfactory way to achieve a remedy. This is something we can help with as we have an experienced Mediator on the team.

With supply chains deeply impacted and production down world over, many businesses have had the rug pulled from under their feet and are confronted with knock on effects. The questions you’ve been asking include:

Can my supplier get out of their contract with me using force majeure?

As above, this will depend on what your contract states and what the facts are. If there is a true case for force majeure, your supplier may be able to terminate or suspend the contract. It’s worth noting however that force majeure only applies in the narrowest of circumstances. For example, it won’t apply if it’s just become more difficult or expensive for your supplier to honour the contract. The test for force majeure is much higher and you need to look closely both at the language and construction of the clause and the real-life facts.

How can you help save my supply chain?

The key is to start with a supply chain risk assessment, starting off with the critical suppliers and working your way down to those who are less so, in each case, looking for alternative sources to plug any gaps, then looking ahead and doing some forward planning. If you’ve been reliant on one supplier or country for example, now may be a time to hedge and build up resilience. Starting with the most critical suppliers, review the agreements you have in place. What happens if they can’t perform their side of the bargain? What rights do you have? What restrictions are there including exclusivity? Can you re-negotiate the deal now with a view to outlasting Covid?

Can I use force majeure to terminate?

The answer above should help your thinking. However it might be more beneficial to look for ways to keep key relationships alive. We’ve been helping clients achieve this by re-negotiating terms and varying agreements for example relaxing exclusivity obligations or to relaxing payment terms. If you really want to terminate, look at the specific wording of your agreement to see if force majeure could be used or other legal doctrines such as frustration come in to play. As above, these are complex legal areas – invoking them incorrectly can have negative consequences so it’s a good idea to seek legal input early on.

In just a few weeks, the way we all live and work has changed completely. Remote working will be a new reality for some, for others it’s business as usual but on a greater scale. It’s important to think about how you’re protecting company data and personal data with secure remote-working tools and best practices. The questions you’ve been asking include:

How should I tackle remote working?

There are a number of things to consider. First up, think about the fact that both confidential information and personal data might be seen by others in your household. Give your teams guidance on steps they can take to minimise the risks that arise. Ideally they should be using company equipment for work. If they have to use their own, you’ll need to think about installing higher security, back up and remote wiping measures. In addition, raise Cyber-Awareness across your teams.

On 30th April, our data privacy specialist will be participating in a PrivSec panel discussion on data protection and cyber security implications of working from home.   You can register here.

How do I reduce our vulnerability to fraud?

Phishing attacks are on the rise, with cyber criminals using Covid-19 related messages to lure people into clicking malicious links. Smishing is a variation we’re seeing in text messages. Make cyber-security training a pre-requisite to mobile working.  The UK National Cyber Security Centre (NCSC) offer a free online module with test questions and a handy infographic. Whether they are using your equipment or their own, require the use of strong passwords or reduce your reliance on passwords using Single Sign On services like Okta or others reviewed here, or Microsoft Hello for Business (which also permits password blacklisting). This NCSC infographic is very helpful starting point. Also think about access control ensuring that only people with a genuine need-to-know have access to sensitive or confidential files. In just a few days, the way we all live and work has changed completely. Remote working will be a new reality for some, for others it’s business as usual but on a greater scale. It’s important to think about how you’re protecting company data and personal data with secure remote-working tools and best practices.

Will I get fined if I’m not on top of privacy?  I’ve got other things to think about right now

The ICO won’t penalise you for prioritising other issues or adapting your practices in this extraordinary period. You can send updates and important information to your customers and contacts if you have a legitimate reason for doing so (e.g. to advise them of a service interruption or measure you’re taking to address Covid-19). These are ‘service messages’ not direct marketing so you don’t need direct consent. Avoid including anything promotional or the direct marketing rules will apply.

What health data should I be collecting from employees?

You can ask employees if they’ve travelled to affected countries or displayed symptoms of Covid-19, but avoid Too-Much-Info Syndrome. All that sensitive information must be protected with extra care, so more sensitive data means more work and greater liability without necessarily being more effective. Instead, ask employees to consider whether they may be at risk or think they may be experiencing Covid-19 symptoms to consult NHS 111 for guidance regarding whether they should self-isolate. If you do need specific health and travel data, only collect what’s strictly necessary and proportionate and keep this sensitive data need-to-know and secure. Don’t ask for sick notes for SSP for Covid-19 related absence, as recent SSP amendments allow you to provide other forms of evidence.

If you need strategic Tech leadership assistance to ensure you’re set up effectively for remote working our friends at Freeman Clarke can help

This is another fast-moving and increasingly complex area. It’s a good idea to check the government’s Coronavirus Job Retention Scheme (CJRS) frequently.  Meanwhile, the questions you’ve been asking include:

What is furlough?

Furlough is a term borrowed from the US. It is a temporary suspension of employment without pay. It can occur by virtue of something planned such as an annual factory shut down or as a cost-saving process instead of making employees redundant. The CJRS assimilates this concept in to UK law: A furloughed worker is someone who has been not been made redundant but is asked to stop working without pay.

Employers can receive a grant from HMRC to cover the lower of 80% of an
employee’s regular wage or £2,500 pm and any associated employer
national insurance contributions and minimum automatic enrolment
employer pension contributions on that wage. Compulsory fees and commissions can be included, discretionary fees and bonuses should not be included.   If applicable wages can be backdated to 1 March 2020.

To be eligible, when on furlough, an employee cannot undertake work for or on behalf of the organisation. This includes providing services or generating revenue.  The minimum period of furlough for an employee is 3 weeks.

What’s the latest on furlough?

The Government recently extended the period until 31st July, with a further period until 30th October during which some flexibility will be introduced to support the cost of workers returning from furlough but employers will have to contribute to the cost (details are not known at this time but likely end of May).

Who is covered by CJRS?

Furloughed employees must have been on your PAYE payroll on 28 February 2020, and can be on any type of contract, including:

• full-time employees
• part-time employees
• employees on agency contracts
• employees on flexible or zero-hour contracts

The scheme also covers employees who were made redundant since 28 February 2020, if they are rehired by their employer.

What do I need to do under the scheme?

The scheme opened for applications on the 20th April.  Full details on how to claim and eligibility can be found on the Government’s website.  Essentially, you’ll need to:

• Designate affected employees as ‘furloughed workers’
• notify the employees of this change
• submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal (HMRC will set out further details on the information required)

It’s important to note that this is still a variation of contract so you need to document.  You also need to look at the role

Can I put someone on furlough and then take them off, or putting multiple employees on a “furlough rota”?

According to the employer guidance, an employee must be furloughed for a minimum of three weeks. The guidance also states that the employer can only submit one claim at least every three weeks.  The updated guidance has confirmed that individuals can be rotated on furlough as long as each period of furlough is at least three consecutive weeks.  When employees return to work they need to also need  to be formally taken off furlough

Can I put everyone on unpaid leave?

Effectively this is likely to fall within the parameters of furlough. Again, you’ll need to review your employment contracts on this. Be careful not to make changes without following due process or having read your employment contracts, to avoid creating further risk for the business.

Can someone working from home be a furloughed worker?

If your team is working from home, then they are entitled to pay in the normal way. The fact they are working from home does not change how they are paid and furlough won’t apply here. You must pay them as you normally would. If cashflow is an issue, explore others in the package of measures announced by the government. Deferred VAT payments and relaxation of business rates may alleviate in the short term. Re-assess regularly to see if you need to call on the CJRS.

Can you be furloughed by more than one employer?

If an employee has more than one employer they can be furloughed for each job. Each job is separate, and the cap applies to each employer individually. An employee can also be furloughed by employer A but not employer B.

Can a furloughed employee take part in volunteer work or training?

A furloughed employee can take part in volunteer work or training, as long as they do not provide services to their employer, or generate revenue for it. If workers are required to complete online training courses while they are furloughed, then they must be paid at least the national living wage or national minimum wage for the time spent training, even if this is more than the 80% of their wage that will be subsidised.

If you need some help managing the people aspects of your business at this time, and for most up to date information our friends at People Puzzles can help

What if I can’t pay my rent?

The government currently protects you from eviction until 30 June 2020. This is not a rent holiday and other remedies are still available to the landlord, including taking action for non-payment of rent and requiring interest on late payment of rent.

On 23rd April, the Government announced new measures to safeguard the UK high street against aggressive debt recovery actions during the pandemic. Statutory demands and winding up petitions will be voided for commercial tenants.   Legislation will also be brought forward to prevent landlords using commercial rent arrears recovery (CRAR) unless 90 days or more of unpaid rent is owed.

The best course of action is to approach your landlord (jointly with other tenants, if possible) to agree a rent holiday or concession. Landlords have an interest in retention of good tenants to protect their long-term interests and investment value, so should be happy to help.   Here’s the latest on rent concessions put to landlords in retail.

If your premises are in a shopping centre or building which the landlord closes, then rent and service charge payments should be suspended until the building/centre is reopened and you can use your premises again.

What if I can’t pay my business rates? 

Businesses in the retail, hospitality and leisure sectors as well as nursery businesses in England will not have to pay business rates for the 2020/21 tax year.  Business in these sectors don’t need to take any action, Local Authorities will simply apply the holiday to their bills. Businesses in these sectors will also receive a cash grant of:

• £10,000 per property having a rateable value upto £15,000; and
• £25,000 per property having a rateable value greater than £15,000 and less than £51,000;

Will my insurance cover any expenses?

You should check your business interruption insurance, but impact of the Covid-19 is unlikely to be covered.

Can I terminate my lease?

Check the lease for break rights, or frustration/breach of landlord’s covenant for quiet enjoyment and seek our advice if you are unsure.

Can my landlord increase my rent?

Check the rent review provisions in your lease and talk to us if the rent is due to be reviewed soon.

What if I am currently under an obligation to do works?

Negotiate with your landlord to extend deadlines for works; both start and finish dates.

What if I am currently negotiating to take new premises?

You are in an excellent position as landlords will be very keen to attract new tenants at this time. Critically, do not agree to pay rent until you have been able to fit out and occupy the premises for your business.  We can talk over what other concessions might be appropriate.

What if my lease is about to end?

The construction industry is in a state of flux at the moment, pending new government proposals. You should therefore ensure that you have photographic evidence of the condition of the premises when you leave. This will be useful if there is any claim for dilapidation’s, which is a very technical area needing specialist input.

Commercial pressures arising from the Covid-19 crisis could readily lead to disputes between businesses. What are your options?

First up, if at all possible, our best advice is to look for ways to resolve the dispute by mutual agreement and document the compromise you’ve reached so everyone is clear going forward and there are no disputes about what resolution you’ve reached.

If this is unrealistic, you may wish to look to more formal dispute resolution, the most common of which are:

• Mediation
• Arbitration
• Court action

The main difference between mediation and arbitration is that with mediation the parties have the decision-making power whereas with arbitration it’s the neutral third party who makes the decision. Both can be very effective at resolving disputes, can be done cost-effectively remotely and can deliver swift outcomes. It’s been estimated that approximately 80% of mediations result in a settlement – a very high success rate

Meanwhile, court action remains an option yet it can be a slower and more expensive process. This is true at the best of times, the Covid -19 crisis is likely to cause greater delays.

If this is an area you wish to explore, we’d be happy to talk. We have an expert Mediator/Arbitrator on the team. Yet if you prefer to escalate a matter through the courts, we can connect you to specialists in our network.

With many businesses seeing their top line decline, managing cashflow is an immediate concern.  The Government provides a range of financial support for businesses.  The easiest way to check what’s available for your business is to visit the Government Business Covid Support Finder page.

What must I pay and what should I pay?

Stress test your financials under a number of different scenarios to give you an idea of your future cash position.  Hope for the best but plan for the worst. Defer and prioritise.  Our sister company, the FD Centre provides some great advice and offers free scenario planning calls for those that need help.

For example: look to take advantage of HMRC’s Time to Pay (TTP) system where VAT and PAYE can be deferred over several months. HMRC may also entertain corporate tax deferment.  They key thing is to start talking to HMRC now. You do not need to miss a deadline, only to have an outstanding liability with HMRC to access a TTP arrangement.  Note: for all businesses, Q1 VAT payments have been deferred with immediate effect. There will be no payments between now and the end of June. Businesses have until April 2021 to pay this back, easing cash flow immediately. However, if you pay by DD and wish not to pay, you should cancel the DD.

What additional government finance support is available to help?

The following schemes are now available:

• Cororavirus Business Interruption Loan Scheme (CBILS)
• Cororavirus Large Business Interruption Loan Scheme (CLBILS)
• Covid Corporate Financing Facility (CCFF)
• Future Fund
• Bounce Back Loan Scheme

A short introduction to each follows.

The Cororavirus Business Interruption Loan Scheme (CBILS) offers both interest and fee-free loans (for the first 12 months) upto £5m via an overdraft, term loan, invoice finance or asset finance for firms up to £45m in turnover. Businesses should contact their banks or finance providers directly.

The Cororavirus Large Business Interruption Loan Scheme (CLBILS) offers loans of up to £25m for businesses with a turnover between £45m and £250m and up to £50m for businesses with a turnover greater than £250m.   The Government will guarantee 80% of the loan for the lender and like CBILS, the borrower remains 100% liable for the entire loan.

Larger companies can take advantage of the Covid Corporate Financing Facility (CCFF). Here companies can contact their existing bank to request commercial paper under the Bank of England scheme. The CFF can provide funding to business by purchasing commercial paper of up to one-year maturity.

On 18th May the Government launched a new scheme (Future Fund) to issue convertible loans to innovative companies which are facing financing difficulties due to the Coronavirus outbreak may be unable to access the Coronavirus Business Interruption Loan Scheme.  This scheme will provide government loans to UK-based companies ranging from £125,000 to £5m subject to at least equal match funding from private investors.

The Bounce Back Loan Scheme offers businesses loans from £2,000 to £50,000 for up to 6 years.  The Government will guarantee 100% of the loan to the lender and pay the interest and fees for the first 12 months. After the first 12 months interest will be fixed at 2.5%.

As a company director, what do I need to think about if my cashflow is affected by the Covid-19 disruption?

Under wrongful trading provisions (IA 1986, s. 214) directors can be held personally liable if they continue to trade a company once they conclude (or should have concluded) that the company has no reasonable prospect of paying its debts as they fall due or avoiding insolvency. At that point they should take every step possible to minimise losses to creditors. If they do not, a liquidator can requires directors to personally contribute to the company’s assets.

If your company enters the “twilight zone” of potential insolvency caused by cashflow problems, you’ll need to exercise caution as your conduct as a director could later be scrutinised. Ask yourself – can I pay my creditors? Should I be incurring new debt? Carefully monitor the financial position (which includes considering cashflow forecasts and compliance with financial covenants), hold and minute regular board meetings and take professional advice early on.

This said, the government is introducing material changes to UK insolvency law in response to the Covid-19 pandemic. These include a temporary suspension of wrongful trading laws for the duration of the pandemic so that directors would not face the risk of personal liability in continuing to trade their companies. This would be made retrospective from 1 March. The suspension of these provisions removes the threat of personal liability on directors allowing them to pay company staff and suppliers, without being accused of increasing losses to all creditors.

However, all of the other checks and balances that help to ensure directors fulfil their duties properly will remain in force so exercising caution is still important.

For example, the suspension of wrongful trading provisions will almost certainly not apply to its more serious counterpart, fraudulent trading (IA 1986, s. 213), for which directors are also personally liable. There would be no justification for relaxing rules against trading with the intent to defraud creditors – especially given reports of the emergence of Coronavirus-themed frauds.

In addition, s. 172 CA 2006 applies where a company is close to insolvency and requires directors to consider the interests of creditors. This duty will continue to apply, so that directors cannot ignore creditors in their decisions or prefer some over others. These duties can also be enforced personally against directors by the company or a liquidator and so directors still face some threat of personal liability. However directors who take reasonable, good faith decisions to try to balance the interests of a company, its staff and creditors are unlikely to face claims.

There is also going to be new temporary moratorium for businesses undergoing a restructuring process such that they cannot be put into administration by creditors during the Covid-19 phase and will continue to be able to access supplies and raw materials.

If you need some help with scenario planning or pulling together financial information to access the CBILS our friends at The FD Centre can help.   Your Right Finance Team also have some great information on managing cashflow and scenario planning for SMEs too