Current developments in the UK – the economic impact of the Covid-19 pandemic
The economic impact of the Covid-19 pandemic is becoming increasingly visible. Companies around the world are wondering to what extent the crisis will affect their business model and what needs to be done now.
Noerr’s lawyers are continuously monitoring the situation and are committed to assisting clients to navigate the difficult legal issues they face when dealing with the Covid-19 pandemic. Comprehensive and up-to-date information regarding measures taken by the German federal and state governments is provided via our Corona Crisis Center.
The UK government has also initiated various support schemes for the UK economy. We summarise some of the key measures below. These may potentially also be of interest to German companies with subsidiaries in the UK.
We will be happy to assist you with any questions you may have, together with our UK partner law firms. Further information on each of the schemes can also be found on the following websites:
Funding / state financing measures
On 17 March 2020, the UK’s Chancellor of the Exchequer Rishi Sunak announced £330 billion in state aid to companies during the Covid-19 pandemic. The liquidity programmes now initiated include in particular the Coronavirus Business Interruption Loan Scheme (CBILS), the Coronavirus Large Business Interruption Loan Scheme (CLBILS), the Covid-19 Corporate Financing Facility (CCFF) and and most recently the Coronavirus Future Fund and the Coronavirus Bounce Back Loan Scheme. Cash grants of up to £25,000 are also being granted. Besides this, financial support for the self-employed is planned.
- The CBILS scheme was set up on 23 March 2020, initially for six months. It is aimed at small and medium-sized enterprises and offers support for financing of up to £5 million and for up to 6 years. The financing is provided through commercial lenders, which will also be the contact points for applications (see here for a list of accredited lenders).
- As part of the CBILS, the British Business Bank guarantees the lender 80% of the financing. Within the first 12 months, further government payments (‘business interruption payments’) will be made to support smaller businesses with respect to interest and fees.
- To be eligible for loans under the CBILS, companies must:
- Be UK-based in their business activity – this can in principle also cover companies which are foreign-owned provided that the core of their business operations is in the UK and the CBILS funding is used to support their business activity in the UK (see here). Certain companies from the banking, insurance and public sectors are excluded.
- Have an annual turnover of no more than £45 million – Note/update: According to the FAQs of the British Business Bank, portfolio companies of private equity investors can in principle be eligible for support under the CBILS as well. When assessing the turnover threshold of £45 million, the business will be considered separately to the private equity investor and its other investments.
- Generate more than 50% of their turnover from trading activity.
- Have a borrowing proposal which the lender (i) would consider viable, were it not for the COVID-19 pandemic and (ii) believes will enable the business to trade out of any short-term to medium-term difficulty.
- Self-certify that they have been adversely impacted by coronavirus (COVID-19).
- Following interim adjustments since the launch of the programme, the CBILS for small and medium-sized enterprises no longer requires that the company is unable to secure regular commercial financing (on commercial terms). Insufficient security is no longer a condition to access the CBILS.
- For further up-to-date information, please visit the website of the British Business Bank.
- From 21 April 2020, companies with an annual turnover of more than £45 million are eligible to apply for support under the CLBILS support scheme for financing through accredited lenders.
- The scheme offers support with respect to loans of up to £25 million (in case of an annual turnover of more than £45 million) or up to £50 million (in case of an annual turnover of more than £250 million). Under the CLBILS the lender also receives a guarantee of 80% on the loan. The maximum term for repayment is three years.
- According to the UK government, an originally planned upper ceiling on turnover of £500 million has been removed from the eligibility criteria (see here).
- Companies who have already received financial support through the CCFF scheme (see below) will not be considered.
- More information is available on the website of the British Business Bank.
The CCFF scheme is aimed at larger companies and offers support in overcoming a short-term funding squeeze. The applications process started on 23 March 2020.
- As part of the CCFF the Bank of England acquires commercial paper, i.e. unsecured, short-term debt instruments issued by a company. The minimum size of an individual security to be purchased from a participant is £1 million. Companies that have not yet issued commercial paper are advised to liaise with their bank on the matter.
- Eligibility criteria for accessing support through the CCFF:
- Companies that make a material contribution to the UK economy. According to the information provided by the Bank of England, firms that meet this requirement would normally be UK incorporated companies, including those with foreign-incorporated parents and with a genuine business in the UK; companies with significant employment in the UK; firms with their headquarters in the UK. It will also be considered whether the company generates significant revenues in the UK, serves a large number of customers in the UK or has a number of operating sites in the UK.
- Companies must demonstrate they were in sound financial health prior to the Covid-19 pandemic. This means companies that had a short or long-term rating of investment grade, as at 1 March 2020, or equivalent.
- Certain financial sector companies and leveraged investment vehicles are not eligible.
- For further information, see the Bank of England website.
- The Bank of England also cut the Bank Rate to 0.1% and initiated a Term Funding Scheme to support banks, especially with a view to funding SMEs.
- On 20 April 2020, the UK government further announced a special support scheme for innovative companies. The government will initially make up to £250 million available in total for the scheme which in particular targets businesses that rely on equity investments and do not have access to CBILS (typically start-ups).
- In partnership with the British Business Bank the UK government will issue convertible loans worth £125,000 to £5 million as working capital financing subject to at least equal match funding from private investors. The loans shall bear interest of at least 8% per annum and shall mature after a maximum of three years. A minimum conversion discount of 20% is planned for converting the bridge funding into equity during the next qualifying funding round.
- General requirements for support from the Coronavirus Future Fund:
- Companies must be unlisted and registered in the UK. If the company is member of a corporate group, only the ultimate parent company, if a UK registered company, is eligible to receive the loan.
- The company must have raised at least £250,000 in aggregate from private third party investors previous funding rounds in the last five years and have a substantive economic presence in the UK.
- It is anticipated that applications will be possible from May and initially until the end of September 2020.
- Further information on the planned headline terms of the convertible loans can be found here.
- On 27 April 2020, Chancellor of the Exchequer Rishi Sunak announced a further loan assistance scheme for small and medium-sized businesses starting on 04 May 2020. Under the Coronavirus Bounce Back Loan Scheme, small and medium-sized businesses can receive loans of between £2,000 and £50,000 with a term of up to 6 years. The scheme will be delivered through a network of accredited lenders.
- Under the Bounce Back Loan Scheme, the UK Government will guarantee 100% of the loan amount. During the first 12 months, no interest or fees will be charged to the business and no repayments will be due.
- Basic requirements for funding under the Bounce Back Loan Scheme:
- Business is based in the United Kingdom. Certain companies from the banking, insurance and public sectors are excluded.
- Business has been negatively affected by the Covid-19 pandemic and was not an "undertaking in difficulty" on 31. December 2019.
- Businesses cannot apply if they are already claiming under the CBILS. However, loans of up to £50,000 under the CBILS may be transferable to the Bounce Back Loan Scheme.
- Under the Retail and Hospitality Grant Scheme certain businesses in the retail, hospitality or leisure sector can receive cash grants of up to £25,000. The Small Business Grant Funding scheme provides certain smaller companies a one-off grant of £10,000.
- Companies eligible for one of these cash grants will be contacted automatically by their local authority.
- The SEISS will support self-employed individuals whose income has been negatively impacted by Covid-19. The scheme will provide a grant worth 80% of their past profits up to a cap of £2,500 per month.
- The scheme will be open to those where the majority of their income comes from self-employment and who have had profits of less than £50,000 (annually on average since 2016, as applicable).
- The scheme will be open for an initial three months. It will be handled via the HMRC website/gov.uk, although applications cannot be made yet. The first payments are expected to be made by June 2020. For further information from HMRC, see here.
The aim of the Coronavirus Job Retention Scheme is to support employers and safeguard jobs at companies whose operations have been severely affected by the Covid-19 pandemic. The scheme is initially open for four months starting from 1 March 2020.
- Employers can apply for a grant worth 80% of an employee’s usual wage costs with respect to ‘furloughed workers’ who would otherwise have been laid off during the crisis. The grant is limited to £2,500 a month (plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions).
- All UK-wide employers with a PAYE (pay as you earn) scheme that was created and started on or before 28 February 2020 will be eligible.
- The online service for claims has been available since 20 April 2020.
- The UK government is also planning to allow small and medium-sized businesses with up to 250 employees to reclaim Statutory Sick Pay (SSP). The online service for applications is not available yet.
- This refund will cover up to two weeks’ SSP per eligible employee who has been off work because of Covid-19. The business needs to have had a PAYE payroll scheme that was created and started on or before 28 February 2020 to be eligible.
Business rates holiday: Business rates for companies in the retail, hospitality and leisure sectors will be suspended for the tax year 2020/2021.
- Payment deferrals: Companies that are VAT-registered in the UK can defer VAT payments due between 20 March 2020 and 30 June 2020 until 31 March 2021. Self-assessment payments due by 31 July 2020 can be deferred until 31 January 2021 to assist taxpayers who are suffering hardship due to Covid-19. In both cases no interest or penalties will be applied.
Other statutory measures
- Insolvency law: On 28 March 2020, the UK government announced plans to amend the insolvency law to mitigate the impact of the Covid-19 pandemic on businesses and directors. One measure under discussion is a temporary suspension of wrongful trading provisions. Details are still awaited.
- Company law: The government also announced plans to relax the rules on annual general meetings (AGMs) to ensure they can be held in line with the general restrictions imposed due to the Covid-19 pandemic. This includes the option of holding AGMs online or postponing them. Details are still awaited; for further information see the website of the Financial Reporting Office.
- Tenancy law: Tenants who cannot pay their rent because of Covid-19 will be protected from eviction under certain conditions up until 30 June. For further measures relating to temporary protection of high street businesses also see here.
Any questions? Please contact: Sebastian Diehl, Dr Thomas Schulz
Practice Groups: Private Equity, Corporate/Mergers & Acquisitions