Business Recovery » FDs, CFOs should avoid “knee-jerk” restructuring on COVID-19 bailouts

FDs, CFOs should avoid “knee-jerk” restructuring on COVID-19 bailouts

Consultants recommend avoiding formal restructuring wherever possible during the next three months

New measures put forth by the UK Government may not offer enough financial relief for businesses attempting to mitigate the impacts of the pandemic.

A March MarketFinance survey found that only half of UK businesses are considering using the Coronavirus Business Interruption Loan Scheme.

67 percent of business owners expect to run out of cash by Easter due to the scheme’s wait times. Businesses are also still waiting for clarification on the government’s other measures, like the Coronavirus Job Retention Scheme’s grants for furloughed workers.

Chris Newell, a partner at advisory firm Quantuma, says that coronavirus’ effects on the UK economy have made it difficult for the government to free up those funds.

“Everybody right now is diving into the banks, diving into the brokers, and seeing whether they can get this money,” Newell says.

Other relief efforts, such as the loans provided by 40-odd banks within the British Business Bank, may be directly tied to CFOs and directors through personal guarantees who may be jumping the gun, Newell says.

“Directors need to be considering their personal position at the moment, because this is probably going to come with catches from the lenders, and that they want to be secure,” says Newell. “I think they do need to look at options, but now is probably not the time for formal restructuring.”

Given that the virus is affecting some industries more dramatically than others, Newell says that most companies should look to cut costs aggressively, furlough employees where possible, and defer paying taxes to HMRC.

For the next three months, open to extension, UK workers on the Coronavirus Job Retention Scheme are entitled to 80 percent of their wages, up to £2,500 per worker, per month.

Additionally, VAT payments between March 20 and June 30 will be automatically deferred for all UK businesses.

Restructuring in a pandemic

Some companies will need to look at formal restructuring sooner rather than later but Newell recommends taking an immediate step back from the process.

“I think in three months’ time, when we start to resurface and get going again—which is approximately the window that people are saying—that’s when they need to kind of reassess what they do,” he says. “But what I’m keen to get across to business owners is that now is not the time to make knee-jerk decisions.

“It is a time for calm, it is a time for cutting costs, time for looking at your employees and looking at what the government’s made available.”

This sentiment was echoed by David Fleming, managing director at Duff & Phelps.

“The impact is deep across the economy – we’ve never seen anything like this before,” Fleming says. “Businesses are losing revenue, they’re completely stopping a lot of industries.

“I suppose what we don’t know, is whether the government schemes are good enough, for want of a better expression, to support the businesses for a period of time. We just don’t know how long this thing is going to last and when we’re back to business as usual, and will companies and directors want to take on more debt?”

Between HMRC’s VAT deferral measures and the government’s additional support, finance departments could find themselves saddled with high levels of debt they are unable to pay back says Fleming.

Both Fleming and Newell recommend instead looking into mothballing opportunities, staying away from formal restructuring and insolvency wherever possible, and keeping an eye on the evolving situation to mitigate cash flow.

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