By Chris Photi, Head of Travel and Leisure at White Hart Associates
The travel industry has been through the toughest period anyone can remember and unfortunately it is set to get worse before it gets better.
The government’s quarantine rules and advice against travel, coupled with the tapering off of the furlough scheme, will put further pressure on the industry. To those who say that we haven’t seen many failures yet, I’m afraid to have to tell them that sadly they are coming.
However, there is glimmer of light for beleaguered firms, with the new Corporate Insolvency and Governance Bill, which is currently passing through the House of Lords and could become law within a month.
It contains various measures to protect businesses and give them some breathing space as we attempt to emerge from this crisis.
Most importantly, it will temporarily stop statutory demands and winding-up petitions served on companies unable to meet their debts due to the pandemic. It will also remove the threat of directors having personal liability for wrongful trading while trying to keep their companies float during this period.
I’ve heard some describe the new bill as a ‘rogue’s charter’ as it may enable the unscrupulous to use the new rules to their advantage.
Of course, there will always be some bad apples that try to exploit a situation.
But, on balance, this is a necessary bill that we fully support because it offers vital help to companies during these desperate times.
Statutory demands and winding-up petitions
Currently, any creditor owed more than £750 by a company can serve a statutory demand on it and if the company does not either pay within 21 days or challenge the demand in court, it is deemed insolvent and the creditor can initiate winding-up proceedings.
Not surprisingly, this can be a very effective way of making companies pay their debts and have been used by individuals to force travel companies to pay refunds for cancelled holidays.
The new law will temporarily disable this practice.
Statutory demands served between March 1, 2020 and 30 days after the bill comes into force cannot be used to support winding-up proceedings started on or after April 27, 2020.
Also winding-up proceedings cannot be started by a creditor from April 27, 2020 to 30 days after the bill comes into force unless the creditor can show that COVID-19 didn’t have a financial effect on the company, or that the reasons for winding-up the company would have existed even without the pandemic.
This will effectively rule out winding-up proceedings against travel companies during this period, as I can’t think of any firm that hasn’t been materially affected by recent events.
Another vital measure in the bill is the temporary removal of the threat of directors having personal liability for wrongful trading while they try to keep their companies afloat as we emerge from the pandemic.
As a director, you have to be able to not only pay your bills as they fall due but also look forward. When you sign off your accounts you have to be sure that you have sufficient resources to cover liabilities in the foreseeable future.
Crystal ball gazing is difficult at any time, but at the moment it is virtually impossible for directors to be sure where they will be this time next year.
The threat of personal liability is a very real one and, in normal times, helps to prevent fraudulent activity, but a temporary lifting of this is a sensible move and will at least give directors one less reason to have sleepless nights while they navigate these extraordinary times.
Termination clauses by suppliers
The bill will also seek to ensure that companies going through a rescue process continue to receive supplies, by prohibiting the use of termination clauses by suppliers.
This may seem harsh on suppliers, who will undoubtedly be facing hardship themselves, so some safeguards will be in place.
Suppliers can also protect themselves by telling clients that they will no longer supply on credit and need to be paid as goods and services are delivered.
Companies are legally obliged to hold annual general meetings (AGMs) and big firms might typically expect to have hundreds of people in attendance for these.
This is impractical with social distancing measures in place and venues shut. For instance I’ve even heard of some companies holding their AGMs in the car park of Cobham services on the M25.
Meanwhile video conferences, which have enjoyed a boom during lockdown, cannot cope with a full AGM attendance.
So, it’s welcome news that, for a temporary period, the bill will allow companies to hold closed AGMs and conduct business, including communicating with members, electronically. They will also be able to take advantage of extended deadlines for filing their accounts.
White Hart Associates are specialist accountants for the travel industry. Visit whitehartassociates.com or contact 0208 878 8383 for more information.