From March 23rd 2020, the government introduced the furlough scheme and a range of other initiatives to support people, businesses, and the economy. The scheme enabled staff to remain employed while receiving up to 80% of their wage.
Businesses, however, have continued operating, and with the scheme set to finish at the end of September 2021, many businesses may have trouble paying staff once the scheme ends.
I’m worried my company cannot survive after the furlough scheme ends
The government support is set to stop permanently at the end of September 2021. With the financial support removed, many companies may find themselves in serious financial distress, and some might find themselves unable to continue trading.
Can I make staff redundant after furlough?
For some businesses and sectors, trading and life will never be the same again. With higher levels of online trading and less footfall for brick-and-mortar shops, it could mean a huge decline in customer levels. This could well mean a reduction in your overheads and staff.
Businesses can make staff redundant once the furlough scheme ends; however, it is important that as a business owner, you follow the government guidelines to protect yourself from any claims of unfair dismissal. Employees must be selected appropriately for redundancy, and the process must follow the correct order.
How can I pay staff after furlough ends?
If, as the economy continues to pick itself up, you believe your business needs the staff currently on furlough, but you’re concerned about the immediate impact, other finance options are available.
Until March 31st 2021, the government-backed Bounce Back Loan Scheme allowed businesses to borrow up to £50,000, which could go towards paying employee’s wages amongst other costs. The scheme is no longer open for applications.
While Bounce Back Loans are no longer available, there are other options available to help your company after furlough ends:
- Explore commercial finance options
Commercial finance encompasses a wide range of options tailored for different circumstances, whether what you have in the bank won’t stretch to the next payment, or you need extra funds to cover the cost of equipment to keep the business covid-secure. Asset finance, for example, can help with the purchase of extra equipment to help the business grow, or lend money against the value of assets it currently owns, which could help if extra equipment is required. Bridging loans are short-term loans used for single, expensive outgoings, such as major alterations to premises. If new assets are required, such as vehicles or machinery, you could explore hire purchasing to spread the assets’ costs.
More commercial finance options
- Repaying through formal repayment arrangements
If the company is insolvent, either due to extra expenses incurred during the pandemic or a decrease in takings, and unable to repay its liabilities when they fall due, as director, you should take immediate action to limit your creditors’ losses. Entering a formal repayment plan like a Company Voluntary Arrangement (CVA), allows a business to tackle their unsecured debts in one affordable monthly repayment. These can be useful as companies reopen and return to some normality as it allows them to continue trading and rebuilding their cash flow while protected from further creditor pressure.
How Company Voluntary Arrangements work
- Closing the company and walking away
Although you may want to keep your company open, it could have reached a point where the debts are so severe that you can no longer repay your creditors, and you may need to close the company down. Should this be the case, speak to us about a Creditors Voluntary Liquidation (CVL), which would see the company close in an orderly manner, removing all creditor pressure and stopping all legal action. This allows you to draw a line under the company and walk away. Staff are made redundant during the process, and able to claim redundancy payments from the government.
How Creditors Voluntary Liquidation works
- Closing the company and starting again
Once the insolvent company is liquidated, depending on the circumstances surrounding the liquidation, you could choose to continue the business in a new limited company. Depending on your circumstances, you may be able to employ the same staff as the old limited company, and buy back some of the assets at market value through a pre-pack liquidation. There are rules surrounding the type of company you can start following a liquidation and using names like the old company’s.
More on pre-pack liquidation
Whatever your circumstances, speak to us. We can offer free, impartial advice to companies facing financial distress and are concerned about potential problems once the furlough scheme ends. If you’re worried you won’t be able to pay your staff and that you might have to stop trading, we can help talk you through the options available.
As the furlough scheme is set to conclude at the end of September, it’s crucial to have a plan for how your business can continue paying its staff. It may not always be possible to keep all your staff on, and some may have to face redundancy, just as long as you follow the correct process. Alternative finance options are available if you believe that you still need the staff as your business continues to grow. If your company is insolvent and unable to repay its liabilities when they fall due, you can explore repayment options to help the company pay back what it can afford. However, if the business doesn’t have a strong chance of survival and you’re facing intense creditor pressure, you may need to consider liquidation.
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