LONDON (BLOOMBERG) -The British government is loosening its bankruptcy rules to allow struggling businesses to continue trading if they can’t pay their debts because of the impact of the coronavirus.
In another sign of how the pandemic is forcing governments to upend policy, Business Secretary Alok Sharma said on Saturday (March 28) the changes would allow British companies being reorganised to access supplies and raw materials, and not be placed into administration by creditors.
There will also be a clause that temporarily removes the threat of personal liability for company directors during the pandemic.
“These measures will give those firms extra time and space to weather the storm and be ready when the crisis ends, whilst ensuring creditors get the best return possible in the circumstances,” said Mr Sharma, who hosted the government’s daily coronavirus briefing because Prime Minister Boris Johnson is holed up with Covid-19.
KPMG and Deloitte, together with other accounting firms with sizable business restructuring divisions, have been pushing the government to introduce softer legislation.
Ministers were already looking at allowing beleaguered companies to access government-backed loans through commercial banks, Bloomberg reported Friday.
“A framework which makes it easier for directors to keep their businesses running while complying with their creditor responsibilities, allowing them to focus on the longer term while preserving jobs in the short term, will be welcome,” Mr Steve Russell, head of Business Restructuring Services at PwC U.K., said in a statement on Saturday.
With economies around the globe set to contract and unemployment set to surge, governments are having to rewrite their economic playbooks.
For Mr Johnson’s administration, it means ripping up a chunk of the manifesto that helped it win December’s election by a landslide, pumping vast sums into the economy and compensating citizens who face a massive shortfall in income.
The weakening of Britain’s public finances prompted Fitch Ratings to lower its credit ranking late Friday and warn that another downgrade is more likely than an upgrade.
For businesses, the coronavirus’s effect on the top and bottom line has been crippling.
“Cash flow remains an urgent concern for many businesses, so it’s vital that government support packages reach businesses and people on the ground as soon as possible,” Mr Suren Thiru, head of economics at the British Chamber of Commerce, said in response to the government’s latest announcement.
And in another indication of how companies are having to tweak their business models, Britain’s major internet service providers and phone operators – from BT Group to Gigaclear – signed up to a package that appears to put customer welfare over profit.
Among the measures: free calls, cheap data boosts and bill support.
The companies will also arrange alternative means of communication, such as routers for people whose broadband can’t otherwise be fixed.
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