COVID-19: Government Support Measures for Businesses and Considerations for Directors - Kuits Solicitors Manchester
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COVID-19: Government Support Measures for Businesses and Considerations for Directors

COVID-19: Government Support Measures for Businesses and Considerations for Directors

18th March 2020 - Published by

In the budget (11 March), the Government pledged £12bn of support to specifically target the effect of coronavirus; £7bn of this was aimed at business and workers.

With the rapid spread of COVID-19, the Government introduced a policy of social distancing on 16 March, but stopped short of ordering the leisure industry to shut down. This has the potential to decimate large sectors of the economy. On 17 March, the Government announced unprecedented measures to up its support to the economy, potentially to the tune of £330bn.

For trusted, confidential advice on your duties as a director during these difficult times, please contact Richard Palmer on 0161 503 2996 or email richardpalmer@kuits.com.

Support Measures

The Government’s guidance for employees, employers and businesses can be seen here.

The measures include:

  • a statutory sick pay relief package for SMEs
  • a Business Rate Relief for small businesses and pubs
  • small business grant funding of £3,000 for all business in receipt of Small Business Rates Relief (SBRR) and Rural Rates Relief – this has further been increased to £10,000
  • the Coronavirus Business Interruption Loan Scheme to support long-term viable businesses who may need to respond to cash-flow pressures by seeking additional finance
  • the HMRC Time To Pay Scheme

Full details of these are set out here.

The most drastic measure appears to be the Coronavirus Business Interruption Loan Scheme, to be delivered by the British Business Bank. The guidance indicates that this will launch “in a matter of weeks”, and will include a Government guarantee to lenders who provide facilities to SMEs. The further measures announced yesterday allow businesses to borrow up to £5m with the Government paying the first 6 months’ interest due on the loans.

The Business Rate Relief will apply to retail, leisure and hospitality sectors in the 2020-21 tax year for properties below £51,000 rateable value. Businesses that did not receive this benefit in 2019-20 will need to apply to their local authority. Business rates support will total £20bn.

In the leisure sector, the Government has confirmed it will set out measures so that pubs and restaurants can operate as hot foot takeaways for a limited period, relaxing planning rules.

The Government has confirmed that it considers Government advice to avoid pubs, clubs and theatres to be sufficient to enable claims on insurance in cases where business interruption caused by pandemics is in place.

Finally the Government will introduce new legal powers in the COVID Bill, enabling the Government to offer “whatever further financial support we think necessary to businesses”.

Key advice on Directors Duties

COVID-19 appears to have pushed many larger companies (such as FlyBe or Laura Ashley) into administration. Not withstanding the unprecedented measures that the Government has introduced, one thing that is unlikely to change is the duties that directors owe to companies they act as director.

Directors have basic duties as codified in the Companies Act 2006 and supplemented by a wide body of case law. These basic codified duties are:

  • Section 171: to act within powers
  • Section 172: to promote the success of the company
  • Section 173: to exercise independent judgment
  • Section 174: to exercise reasonable care, skill and diligence
  • Section 175: to avoid conflicts of interest
  • Section 176: not to accept benefits from third parties
  • Section 177: to declare interest in proposed transactions or arrangements

If companies enter administration or liquidation, the insolvency practitioners appointed have a duty to investigate the conduct of the directors and may have the ability to pursue directors for entering various transactions and/or for misfeasance generally.

Given the speed of developments with COVID-19, it is more important than ever for directors to be aware of the measures available to the company.

For example, you as a director are now aware of the Coronavirus Business Interruption Loan Scheme, and that it will launch “in a few weeks”: can the company get to the stage where it can (a) apply for and (b) receive the loan? Is the company likely to be able to repay such loan on the terms on which the loan is advanced? To be able to make that decision, the directors need to be aware of (for example):

The up-to-date financial position including management accounts showing balance sheet/cash flow position of the company

1. Potential insolvency risks and creditor action
2. Mitigation tools launched by the Government
3.The supply chain: can the company access raw materials/supplies it needs
4. Existing terms of contracts it has with suppliers and customers, in particular force majeure and other termination clauses.
5. Terms of new contracts: should these be reviewed to ensure they can be complied with?
6. The market the company operates in
7. Compliance with regulatory obligations
8. Employees interests and health and safety
9. Access to funding to ensure compliance with banking covenants
10. Disaster Recovery Planning
11. Insurance available to the company and/or the directors

Whatever measures of mitigation the Government will introduce, they are extremely unlikely to relax the duties a director owes to the company. Financial and legal advice may assist directors in making the decisions they need to make to try and ensure that the company survives this unprecedented challenge.

For trusted, confidential advice on your duties as a director during these difficult times, please contact Richard Palmer on 0161 503 2996 or email richardpalmer@kuits.com.

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