The Impact of the Announcement that the UK is now Locked Down on Businesses and Insolvency Appointments
The Prime Minister announced tonight that all shops selling non-essential goods in the UK are to close immediately and except in specific circumstance people will not be allowed to leave their homes – all social gatherings and social events are to stop. This measure will be reviewed in three weeks.
The important questions that these measures raise for a business are:
Which shops are non-essential?
The Prime Minister confirmed that this would include clothing and electronic stores but stopped there. We expect further details and will share that information once it is available but this is key to determine whether the business has to be shut down.
What is the impact of a shut down (for three weeks or possibly longer)?
Can the business still trade if all employees have to work from home?
If employees cannot work from home and the business is non-essential what will shutting the doors mean?
Do the measures announced by the Government enable the business to survive and for how long? It is hoped that there will be a temporary interruption but this will be reviewed in three weeks and may last longer.
If the business can trade, how do supplies reach end users? Will demand drop/increase?
What measures are or should be in place to manage the risk to the business?
Lock-down may force many businesses into distress (or further distress). Taking professional advice will help determine whether the underlying business is sufficiently resilient to withstand the current restrictions or whether a restructuring or insolvency process is the only option.
Impact on restructuring
If a restructuring process is the only option, the current restrictions may limit what those options are.
Trade is restricted, so a trading administration is no longer an option (unless the business is an essential supplier). An administration sale is probably off the cards given that no one can trade the business. Can an administrator simply mothball the business? Is liquidation the only option?
In addition, the announcement will also impact on current appointments. Is the business over which the administrator appointed essential? What are the options?
These are all questions that we are considering in light of the Prime Minister’s announcement and the answer may also depend on whether the Government announces any further measures to protect businesses that are only in distress because of the Covid-19 restrictions, or where the underlying business cannot be saved because ongoing trade is not permitted.