May 2020 - Vymans

29th May 2020

Covid-19, Recession and Insolvency

When is a Company Insolvent?

There is no doubt that we are in a recession. Most businesses have been fundamentally affected by the COVID 19 pandemic. It is important for a company directors to be mindful of the possibility of insolvency and the implications.

When a business is unable to meet repayments on debt, or fulfil its financial responsibilities, it is considered insolvent.

For directors, this is a time fraught with risk, and it is up to them to manage the situation carefully and sensitively, in order to meet their obligations to the business and its shareholders, as well as creditors.

Should a director fail to act appropriately when a business becomes insolvent, there is a chance that they could face legal action and personal liability.So, it is very important to know what you need to do if you find yourself in this position.

What are the Warning Signs?

Before a business becomes insolvent, there will be an abundance of warning signs to be on the lookout for. It is helpful to know what these warning signs are, so that you can take timely action either to avoid insolvency, or to wind up the company in an orderly fashion.

Some of the signs to look out for include:

Decreased sales or revenue
Increased costs (e.g. of supplies, staff, etc)
Difficulty in securing loans, finance or other facilities
Suppliers or customers having difficulty in supplying or paying you
You are unable to pay staff wages
You cannot keep up with demands for payment
Other

Smaller signs that you are reaching a dangerous financial point include:

Constant ‘firefighting’ with regards to staying on top of payments to creditors
Paying bills later and later each month
Stock deliveries being delayed due to non-payment, affecting your ability to make sales

Do you have Key Performance Indicators (KPIs) in Place?

A business which is running effectively will have several business performance systems in place to give you information about where your business stands financially.

You should have cash flow forecasts, aged debtors’ reports, and sales forecasts available to you at all times so that you can refer to them when examining the health of the business, and prior to making any important financial decisions.

Without these, it is impossible to identify your weak points, identify areas of improvement and make any business or strategic decisions confidently.

Company Insolvency Tests

If you think that you are in a tenuous position and might be on the way to insolvency, there are a couple of company insolvency tests which are generally used to determine whether your business is insolvent.

Balance Sheet Insolvency Test

A balance sheet insolvency test is designed to determine whether the shareholders’ funds are in the red, i.e. a negative figure. If your company liabilities are greater than your company assets, then your company is balance sheet insolvent. Your balance sheet should include future liabilities as well as contingent liabilities, for a more accurate overview of your position.

Cash Flow Insolvency Test

The cash flow test analyses your company’s ability to pay debts when they are due, or very near to the payment due date.

The cash flow test relies on simply looking at incomings and outgoings to determine whether your company can pay its bills in a timely manner.

What to do if your Company is Insolvent

If, as a director, you suspect that your company is insolvent, it is your responsibility to take appropriate steps to avoid increasing loss to creditors as this could make you personally liable for the company debts.

Once a company is insolvent, a director’s responsibilities crucially pass from having to act in the interests of the shareholders to one where they must actin the interests of creditors.

If you do not do this, then you could be guilty of “wrongful trading” under s214 of the Insolvency Act 1980 and could be made personally liable for creditor debts.

It is very important for directors to realise that they cannot rely on the “shield” of limited company status, which in normal times protects directors from being personally liable for any company debt.

Failing in your statutory duties as a director leaves you open to prosecution and may result in you having personal liability for company debts, a situation that must be avoided at all costs.

Are you worried about your Company?

If you are worried that your company may be insolvent now or that it may become insolvent soon it is vital that you act immediately.

By acting quickly you can initiate a process which may save your business (for example administration or company voluntary agreement) or at least take steps towards an orderly winding up (which will hopefully minimise loss to creditors and the potential for claims against you).

If you wait until things are too late, then there is the possibility that you could be put into compulsory liquidation. When this happens, the court will appoint an insolvency practitioner, who has no prior relationship with you and may pursue a more aggressive stance in terms of viewing your conduct within the business. This could result in legal issues and financial loss for you as the winding up proceeds.

Vyman Solicitors are an accomplished and experienced firm in all areas of insolvency law and have established good working relationships with a number of insolvency practitioners and would welcome the opportunity to have a sympathetic discussion with you regarding any worries you may have about you and your Company’s financial position.

Please call us on 0208 427 9080 to find out more.

22nd May 2020

Business Interruption Insurance Claims arising from Covid-19

According to the Association of British Insurers (ABI), insurers in the UK are set to pay out £1.2 billion in claims from individuals and businesses affected by Covid-19 over the coming months.

Of this estimate, the ABI says that around £900 million will cover business interruption claims, £275 million for cancelled travel arrangements, and £25 million for cancelled school trips, weddings and events. Whilst these figures are just estimates, they do make up an official submission to the Treasury Select Committee in order to provide as accurate a picture of the state of the insurance industry as possible at this stage.

The ABI also said, in this blog, that insurers have been managing an extraordinary level of activity over recent weeks, thanks to Covid-19, with some insurers saying that they are dealing with a 200% increase in call volumes.

Huw Evans, director general of the ABI, said:

“This is an unprecedented event, and insurers recognise that it is a very worrying time for everyone.

“While many business owners are uninsured for pandemics, UK insurers still expect to pay over £1.2 billion in claims, making this a significant insured event.

“From paying all valid claims, to providing a range of extra help and support to customers, insurers are working hard to reassure and support policyholders through this uncertain period.

“However, we are also painfully aware that the majority of businesses are uninsured for global pandemics, as is the case throughout continental Europe and North America.

“Although ABI members expect to pay £900 million in business interruption claims, most policyholders are not covered for pandemic losses. We agree strongly that the UK should examine public-private partnerships to find a lasting solution, to enable more affordable, more extensive pandemic insurance cover to be available to those firms who want it.”

Pressure Groups Approach ABI

In response to the ABI, protest group ‘Covid Claims Group’ has written an open letter to the ABI regarding its stance on Business Interruption claims, calling it ‘callous and wrong’. In the letter, founder of the Covid Claims Group, James Ollenshaw, asked insurers to rethink their stance and promise to honour extended business interruption claims with regards to the coronavirus.

Mr. Ollerenshaw wrote:

“The ABI’s abrogation of responsibility has come as a considerable shock to SMEs that paid extra for extended business interruption (BI) cover.”

The letter goes on to say that whilst they did not expect businesses with basic business interruption insurances to be covered for the Covid-19 situation, they are aghast that pay-outs are been refused where policy holders have paid a premium for a level of cover that they believed would protect them against any forced closure of their business.

Insurers including Hiscox, RSA, QBE and Allianz have all come under fire for their refusal to pay out on business interruption claims, seemingly backed up by the ABI’s public position on such claims.

As of Monday 11 May the letter had 666 signatories.

Why Are Businesses Struggling to Claim?

Each insurance policy is different and, even if policies do have the extensions outlined above, there may be certain exclusions which insurers may seek to rely upon; or insurers may argue that the novel COVID 19 pandemic is simply not covered.

Another point to note is that business interruption policies often require the outbreak to be specifically at the business premises or within a certain area surrounding the premises. Certain insurers are relying on this to avoid cover.

How Can You Make A Claim?

If you wish to make a claim on your insurance for anything related to coronavirus, it is useful for you to follow certain steps to make it more likely that your claim will be successful.

Look over your insurance policy in fine detail to see if your situation is covered.
If you do believe that you are eligible to make a claim, build your case carefully, gathering any documents and evidence that you can to make your case stronger. These could include documents that prove your earnings, and any documentation that evidence the damage done to your business.
Follow the claims procedure specified in your policy documents. Failure to follow the procedure may jeopardise your claim.

What If Your Insurer Declines Your Claim?

You could make a formal claim against your insurer which may involve instructing solicitors and ultimately commencing court proceedings.
You could also investigate whether you have a claim against your broker for failing to advise you properly.
Financial Ombudsman Scheme. You could make a claim under this scheme, which is limited to £350,000 per claim. This could be a quicker and cheaper alternative to suing your insurer or broker in court.

If you are uncertain about the legalities, or have been turned down by your insurer but think they are wrong, then seeking legal advice would usually be your next step.

Vyman Solicitors have a large and successful commercial law section and are fully able to help you interpret the finer points of your insurance policy, and are here to advise you on what we think your chances of success are.

You can reach us on 0208 427 9080 for further information.

15th May 2020

Lockdown and Your Family: How Coronavirus is Affecting Relationships

While the fear of coronavirus itself was enough for most households across the UK to agree without question to a lockdown, news sites have begun to report serious flouting of lockdown rules over the past weeks.

Some posit that people are suffering from a general lockdown exhaustion. Others believe that it is likely that tensions within households could also be forcing people outside more.

Speaking to the BBC, Professor Jacqui Gibb of the Open University stated that, before coronavirus, couples would spend an average of two and a half hours in each other’s company each day.

During the lockdown, families are spending up to 15 or 16 hours of each day together. Add to that the presence of children who would normally be at school, homes can start to feel crowded.

An analogy might be the festive season. Everyone knows that Christmas and family holidays can be a tense time as families are forced together for hours on end. With the pandemic, there is no end date – no light at the end of the tunnel – this is bound to create additional stress.

Not only this, but coronavirus introduces further pain points in addition to the concerns about one’s own health and the health of loved ones, for example, financial worries due to jobs lost or with an uncertain future, a lack of childcare, and the disappearance from life of normal interactions with friends and far-off family members.

The situation in hundreds of thousands of UK households is likely to be incendiary right now.

In fact, figures recently released by the National Domestic Abuse helpline show a 25% increase in calls for help since the beginning of the lockdown, showing that a worrying trend is developing.

Single Parents

Whilst families with one or more adults struggle with lack of personal space, single parent families are among the hardest hit by the lockdown.

Single parents, of which there are more than two million in the UK, have a number of extra worries during normal times, and all of these issues are magnified during a crisis.

90% of single parents are women and, while the majority are in work, a large number of these are in lower-paid roles or on zero-hour contracts. With the uncertainty of job status for most people in the UK right now, single parents are faced with the possibility that they won’t be able to afford their bills if they lose their jobs.

Single parents are also facing the crisis alone with shelter-in-place rules meaning that they cannot share childcare with others or have face-to-face social contact with other adults.

How Are Child Contact Arrangements Affected?

One of the other things that single parents have to consider is how to work child contact arrangements during this crisis if their ex-partner is still involved with the children.

The government guidance currently states that children are allowed to continue to travel between separated parents. Whether they actually do or not is up to the parents to decide as this does increase the risk for both children and the households that they are moved between. Parents can make the decision between them whether they are going to continue visitations, and how often they want to do so.

Face to face contact must be stopped if someone in one household or the other falls into the extremely vulnerable category or if someone in either household develops symptoms.

Otherwise, changes can be agreed between parents and children unless there is a court order in place. A court order can be varied by agreement, set out in writing, and agreed by both parties.You should set out a date to review the agreement and prepare yourself to set new dates going forward up until the lockdown ends.

Some of the changes parents can put into place to protect their children and respective households during the coronavirus crisis include:

Switching from public transport to driving if one parent is able to
Making visitations longer and less frequent so that there is as little time spent out of the house as possible
Mixing face to face contact with online contact so that it is just as frequent but with less moving between households

Approaches For Families In Lockdown

If you are locking down as a family, either as a single parent or with two or more adults in the home, it is key that you get the whole household on board to protect your environment and keep everyone happy.

Create A ‘Family Contract’

Sit down with the entire family and work together on a family contract that gives everyone a role during quarantine, helps to set out expectations and concerns, and discusses what you can all do to maintain a happy home.

Having the whole family work on this makes everyone feel involved and it helps to ensure that a lockdown arrangement is arrived at which everyone is happy with.

Set Up A Daily Structure

Routine is an important part of day to day life outside of quarantine, and so it should also be part of life inside it. Make sure that there are set getting up and going to bedtimes and that everyone has activities to do each day.

Stay Active

Keeping fit and healthy is not only good for your physical health but it promotes much better mental health as well. Try online exercise classes, playing sports and games in the garden or even fun activities like a little obstacle course you can all compete in.

Give Each Other Space

Being in the same house all day every day can lead you to feel irritated by the people that you live with. This is why it is so important to get some alone time each throughout the day. Make sure that everyone respects each other’s alone time, and has activities that they can do independently of each other.

Vyman helps clients with various aspects of family law including assistance on arranging new visitation rules throughout quarantine and beyond.

Call 0208 427 9080 or email zharna.sutaria@vyman.co.uk to find out more about our family law services.

7th May 2020

Covid-19: Can You Just Not Pay Rent?

New data released by Remit Consulting, gathered from six leading property management companies in the UK, revealed that just 48% of tenants paid on time and in full in March. Just 41% of retail and hospitality tenants paid their rent while 57% of office tenants paid.

This comes as an update to the Coronavirus Act 2020 bans landlords from using their usual rent collection tactics in order to obtain rent from tenants.

Whilst some of the 80,000 tenants which made up the data have been unable to pay their rent due to the Covid-19 crisis, it was noted by researchers that a significant minority of businesses were unwilling to pay and others were both unwilling and unable.

So what does this mean for both businesses and landlords, in the uncertain climate that we currently find ourselves in?

Coronavirus Act 2020

The global pandemic is an unprecedented and economically damaging situation that is affecting most businesses in some way or another. The Coronavirus Act is legislation that has been drafted to protect businesses and individuals from economic damage during this time.

Businesses which rent property are likely to struggle over the coming months as business is slow or even non-existent whilst the UK lockdown remains in place. The Coronavirus Act prevents landlords from being able to start eviction proceedings on tenants for any reason, primarily until the 30th of June 2020 (although this may be extended if the Shelter-In-Place order is).

Section 82

Section 82 of the bill seeks to temporarily ban the forfeit of commercial leases for non-payment of rent until at least the 30th of June 2020. A further update to the legislation has targeted rent collection tactics, effectively stopping landlords from placing pressure on businesses who do not pay their rent during this time.

The reason for this update is that statutory demand notices and demand orders – both standard procedure for landlords attempting to force payment of rent – can force businesses into insolvency and make it harder for the business or individual to obtain credit in the future.

As a result of new regulations, Landlords are also unable to use Commercial Rent Arrears Recovery (CRAR) unless they are owed more than 90 days of unpaid rent. This protects any commercial business pushed into financial hardship as a direct result of Covid-19.

What Can Tenants Do?

If you run a business renting workspace, this legislation allows you to forego paying your rent for the stated time. However, rent is likely to still be owed after this meaning that you will eventually have to pay it in full so simply not settling up is not necessarily the best option.

The best thing for any tenant to do is to discuss their options with their landlord in order to come up with a solution that is mutually beneficial and ensures that you maintain your relationship with your landlord.

You could discuss with your landlord the following options:

Can you make monthly rental payments for the time being, as opposed to quarterly lump sums?
Could you get a moratorium on rent payments for the next few months? If not, could your rental payments during this period be split up and spread over the following six months after things have returned to normal?
Could you get a reduction in rent during the pandemic?
Could your rent be recalculated on a turnover-only basis?
Could your rent be reduced by 50% so it is equally covered by yourself and your landlord during this crisis?

While broaching this subject with your landlord may feel uncomfortable, most landlords do understand that this situation places many tenants in a difficult position. They also understand that it will be more difficult to find a new tenant during this time than to accept slightly different terms for a brief period.

Advice For Landlords

It is not only tenants being backed into a difficult position by the coronavirus pandemic. Landlords too are facing disruption to their income and uncertainty about the future. Here are some of the most common concerns and how you could overcome them.

If Your Tenant Cannot Pay Rent

The government has stated that you are not required to stop charging rent during this time and it is up to you to decide how best to handle the crisis. If your tenants are having trouble paying rent, the best thing to do is to have a discussion with them about their options.

Landlords are able to apply for a three-month payment holiday on your mortgage. If you secure this holiday and your tenants are unable to pay rent, this is much easier for you to manage financially.

You may also wish to consider accepting a lower rent payment in the short term and arranging a repayment plan to cover the debt later on.

Can You Reclaim Your Property?

The Coronavirus Act 2020 restricts you from commencing possession proceedings for any reason until the 30th of June 2020 unless you give your tenants three months’ notice. The government has also warned landlords not to commence repossession proceedings unless they have a very good reason to do so.

All housing possession cases have been suspended for 90 days as of the 27th of March. So, if you had already issued your tenant with a possession notice before 27 March, you still won’t be able to take it to court until the 90-day period is over.

What’s Next?

In all cases, whether you are a tenant or landlord, the law is not completely straightforward. We suggest that, if you are having an issue with rent or non-payment of rent, you speak with us at Vyman so that we can assign a solicitor to your case and they can look into your specific arrangement to see how you should best proceed.

We can look at your lease to see if there are any clauses or other legal grounds that justify non-payment of rent at this time. This could include:

A ‘force majeure’ clause
A frustration of the agreement (meaning that the terms of the agreement cannot be abided by thanks to unforeseen circumstances, of which Covid-19 would be the perfect example)
The agreement becoming illegal. Covid-19 regulations make it illegal to operate certain types of business, which could in turn make for a good argument that your obligation to pay rent should be suspended during this time.

Contact us on anup.vyas@vyman.co.uk or sheetal.badiani@vyman.co.uk and we will review your tenancy agreement for £275 + VAT.

We aim to provide a response within two business days and will advise you on your position during the coronavirus pandemic as well as any additional steps pertinent to your situation which we would recommend.

We may also provide you with a letter from us to give to your landlord and assist your negotiations.