Corporation Tax

Insolvency and coronavirus (COVID-19)

Produced by Tolley
  • 02 Nov 2021 09:21

The following Corporation Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Insolvency and coronavirus (COVID-19)
  • What is insolvency?
  • When to appoint a licensed insolvency practitioner?
  • What does an insolvency practitioner do?
  • Company Voluntary Agreement (CVA)
  • Administration
  • Receivership
  • Liquidation
  • UK legal reform in response to the coronavirus pandemic
  • A moratorium for companies
  • More...

Insolvency and coronavirus (COVID-19)

Businesses have attracted a great deal of support from the Government in response to the coronavirus (COVID-19) crisis. However, even the Chancellor has admitted that not every business will survive these difficult times. Many businesses are facing a real risk of insolvency, and they either need to adapt quickly to survive or face the real prospect of closure.

What is insolvency?

Where a company cannot pay what is owes, or when the value of its assets is less than its liabilities (ie when it has a negative balance sheet), then it is technically insolvent.

The economic impact of the coronavirus crisis means that the value of real assets has been significantly impacted. At the same time, many businesses are facing cash flow problems that mean that they cannot pay their creditors, and some are even forced to enter into more debt by applying for loans. A drop in asset value compounded with an increase in liabilities means that otherwise healthy businesses are suddenly plunged into a technically insolvent position.

Having a negative balance sheet does not automatically mean that formal insolvency proceedings must begin, but facing up to the problem sooner rather later can help avoid a worse position than if nothing is done.

When to appoint a licensed insolvency practitioner?

There can be a natural reluctance in appointing a licensed insolvency practitioner (IP) and the stigma of failure can be attached when addressing the subject. It is also a point at which the accountant may feel that now is the time to hand over their client to a licensed IP. Whilst this is true to some extent, it does not mean that the accountant no longer has a role to play with their client. IP’s will work closely with their referring accountants when delivering their services.

It is also important to remember that a licensed IP will first seek to examine the business in order to seek opportunities to save it. Restructuring and insolvency go hand in

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