COVID-19 UK: What next for distressed companies and their stakeholders?

Updated 1 October 2021

Government support measures have been extended but will eventually end – what then for companies and their stakeholders?

Key dates and issues for companies and their stakeholders

Significant government support measures have been provided in response to the COVID-19 pandemic. Some measures have been extended on multiple occasions, and may potentially be again, but others have now begun to lapse or taper off. The breathing space afforded to companies will inevitably end at some point, therefore directors will need to be cognisant of the key dates and be making preparations for these. Balance sheets have been and will continue to be negatively impacted and lender and investor appetite for risk has diminished in light of the challenges to accurate business forecasting which COVID-19 continues to present.

Boards will need to consider not just how to survive on a short term liquidity basis but whether they have longer term balance sheet and liquidity issues which need to be addressed. Secured creditors will usually favour turnaround over insolvency, but will only be able to do so if balance sheets and longer term financial commitments can be right-sized to reflect prudent valuation and forecasting.

Companies, shareholders and creditors should be working together to agree solutions. Experience demonstrates that a proactive and consensual approach, with early engagement, presents the best prospect of a successful resolution of financial distress, protecting directors and preserving value for stakeholders. Boards should therefore not delay in seeking to address any balance sheet issues especially where debt levels have started to look insurmountable.

In this note we explore the key dates which all boards and financial stakeholders must be cognisant of. We also identify some of the tools which are available to address overburdened balance sheets. All key dates identified are correct as at 30 September 2021. However, this is obviously an area that is subject to change at short notice, and some of the deadlines below may subsequently be extended by further measures.