Business Long COVID: How to combat coronavirus’ long-term effects on your business

As the pandemic may still have an impact on your business in the long term - here are a few things to consider...

Unless you’ve been living under a rock for the last 18 months, it’s been impossible to miss the coronavirus’ impact on all aspects of life, from rules on socialising to how businesses can operate. While many businesses have encountered issues such as a loss of trade or restrictions on capacity, there may be longer-term effects that directors may not have considered. 

How coronavirus can affect a business in the long-term 

The coronavirus’ immediate effect on businesses is obvious. Many had to close during the lockdowns, and even if they could reopen after those lockdowns were lifted, most had to operate with extra precautions or at a reduced capacity. 

Going forward, businesses could find new challenges posed by the pandemic’s longer-term effects. With many companies allowing their staff to continue working from home or adopting a hybrid of working from home and office working, businesses that relied on passing trade could suffer a downturn. Customer habits have also changed, and habits that were once seen as commonplace have become less so. Similarly, some of those habits have gained a stigma since the pandemic. 

These scenarios could negatively affect businesses even after life goes back to ‘normal’. 

Pressure from creditors 

With all the extra precautions and restrictions, businesses can find themselves unable to cover their liabilities when they fall due. Should this happen, creditors are allowed to pursue the business for the debts owed. This action can start as reminders via phone or post and can escalate to County Court Judgements (CCJs) and even bailiff action. While the government has imposed limits on creditor pressure for businesses affected by the pandemic, once those limits are lifted, creditor pressure may become something business owners should consider again.  

It’s worth noting, creditor pressure is not the same as creditor harassment, wherein a creditor can become overzealous with their pursuit of repayment. 

If the business is insolvent 

If the business cannot repay its liabilities when they fall due, it is classed as insolvent. Once you find your business is insolvent, acting immediately is essential if you want to save the business and limit the long-term repercussions if you decide to close it. Insolvency doesn’t have to end in a business’ closure, so the sooner directors act, the more options will be open. 

One of those options could be repaying the debts at an affordable rate every month. This process takes the form of a Company Voluntary Arrangement (CVA) for limited companies and an Individual Voluntary Arrangement (IVA) for sole traders. These arrangements usually last five years, and once they conclude, all remaining unsecured debts will be written off. 

Alternatively, if repaying isn’t an option for a limited company, the directors could explore restructuring the company through an administration. Doing so puts a licensed insolvency practitioner in charge of the company. They will make the necessary restructuring changes to make the company profitable again, making it appealing to potential buyers. 

Acting before insolvency 

Even if the business is solvent, the pandemic has changed a lot of factors that could have more of an impact than just a financial one. What was once a viable business with a healthy market could have become less lucrative as customer habits have changed. With these changes, business owners may want to leave the industry or use the opportunity to retire. In which case, solvent limited companies can apply for an MVL through a licensed insolvency practitioner. 

MVL stands for Members Voluntary Liquidation, a liquidation process designed for solvent limited companies. Directors can choose to close a company this way if they feel it has come to the end of its useful life or if the directors wish to leave the industry or retire. An MVL has advantages over a dissolution. For example, companies with more than £25,000 in assets can find the process more tax-efficient and a faster release of cash. Depending on the company’s circumstances, funds can sometimes be distributed within a week of receipt.  

Summary 

While the days of country-wide restrictions may be over, businesses could feel the coronavirus’ effects for some time to come. On top of the expected pandemic-related debts, businesses could face longer-term issues. Couple the downturn in business with additional pressures from creditors out to recover their debts, and businesses may find themselves insolvent. Fortunately, businesses can apply for one of several insolvency procedures either to repay their debts or close in an orderly manner. Even if the business isn’t insolvent, changes in customer habits mean what was a lucrative and profitable business before the pandemic could be less viable now. Should this be the case, directors can choose to close the company via a Members Voluntary Liquidation (MVL).