Placing a moratorium on winding-up petitions will protect retailers and help contain COVID-19 business interruption

Placing a moratorium on “petitions” to make retail businesses insolvent would protect retailers and help contain business interruption caused by COVID-19, says RPC, the City-headquartered law firm.

According to RPC, 52 petitions to wind-up retail companies have already been filed this year*, as struggling retailers fail to pay their creditors. A moratorium on these actions by creditors would give retailers a much-needed buffer to help them stretch payment deadlines, whilst they attempt to mitigate the impact of coronavirus.

Despite the temporary closure of many courts, which means new petitions won’t be processed for some weeks, the filing of a new petition can still have very adverse implications for a business. The filing of a petition by one creditor could encourage other creditors to stop funding the business putting the retailer under additional pressure.  It will also almost always result in a freezing of its business accounts.

The retail sector, which accounts for a significant proportion of the UK economy, is expected to experience more challenges as coronavirus continues to impact cash flow, However, RPC says that there has been an unprecedented drive by retailers to weather through the current difficult period by working across the supply chain to come up with innovative solutions. Crucial to this is early communication.

If suppliers and retailers can work together to negotiate payment holidays or protracted terms, this could offer a much-needed lifeline to many retailers, potentially allowing them to continue to trade.

Finella Fogarty, Business Restructuring and Insolvency Partner at RPC, says “Even if the winding up petitions aren’t processed they scare off suppliers and possible funders and can have damaging effects on businesses. Without supportive suppliers, retailers will struggle to weather the storm.”

The Government has been forced to revamp its loan scheme, including removing the requirement for personal guarantees. The Chancellor had allocated £330 billion in loans to help businesses through the coronavirus pandemic. But there were significant delays in the processing of these loans, with very few businesses receiving financing.

Significant delays remain in spite of these measures, as lenders struggle to meet the enormous demand. Even once loans are approved, businesses may still be forced to wait weeks before they receive the money. 

The Government ignored calls to place a cap on the high interest rates that some banks are charging, with some rates as high as 35%. This means that even businesses which do manage to secure a loan are at risk of having to pay back significantly more, causing problems further down the line. 

Adds Finella Fogarty: “Despite the much-needed Government package, the challenge we’ve seen businesses face is that this money isn’t yet going out the door.  Businesses are doing everything in their power to deal with their cash flow requirements until the money comes through. ”
  
Karen Hendy, Co-head of Retail at RPC, says: “Economic pressure on the retail sector is nothing new, however few businesses have faced challenges on such a scale.”

“Whilst the Government is taking action to help speed up the process of loans being granted, for many retail businesses the situation is highly time critical. The faster loans can be processed, the better”