News and insights | COVID-19: The True Impact of Government Support

COVID-19: The True Impact of Government Support

March 2021

During the global COVID-19 pandemic, UK Government support has been crucial, even for some of the largest businesses in the UK that had been trading well until the pandemic hit.

The overall quantum of support is unprecedented, with the total cost of COVID-related business, employment and other support measures expected to surpass £300bn.

Of this total, £85.6bn remains outstanding in the form of Government-guaranteed loans and a further £33.5bn of VAT was deferred in Q2 2020. The question remains as to how and to what extent businesses will be able to meet the associated repayment requirements.

To further complicate matters, UK Parliament enacted two pieces of legislation that significantly change the landscape for businesses facing financial difficulties:

  • The 2020 Finance Act, effective 1 December 2020, that re-introduced Crown preference – elevating the seniority of debts owed to HMRC above floating charge holders; and
  • The 2020 Corporate Insolvency and Governance Act (CIGA), effective 26 June 2020

There is no doubt that without the scale of the support provided to UK businesses to date, the number of failures would have been catastrophic for the economy. Yet at the same time, the commercial reality of the repayable measures and the new legislation are not fully understood.

This article explores the likely implications and potential uncertainties arising from these events for businesses, with specific focus on audit sign-off, lender and Government behaviour and directors’ duties.

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