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Coronavirus updates

In light of the coronavirus (COVID-19) outbreak, the number one priority is the health and safety of the country. The BVCA has taken its own measures to protect its staff, and we are committed to supporting our members and their portfolio companies.

The BVCA response to the COVID-19 outbreak: Statement of Best Practice.

The BVCA sent out surveys to members to gain feedback on the impact Coronavirus is having on their firms and portfolio companies. We are using the information from the surveys and further conversations with members to provide written evidence to HM Treasury and Government departments on how the support mechanisms in place are working for firms and their portfolio companies and how they could be improved. We are also providing feedback on what the BVCA believes will further help to support businesses through this period.

The BVCA is hosting webinars for our members about how the UK private equity and venture capital industry is responding to the outbreak, and how the BVCA is supporting its members and their portfolio companies during this time.

We have compiled official government guidance, as well as updates from other trade associations, to provide information for portfolio companies in the following areas:

  • Financial support from Government
  • Safer Working during the pandemic and rebuilding the economy
  • Other guidance for employers
  • Corporate Insolvency
  • HMRC Company Residence and Permanent Establishments
  • Valuations and audit opinions
  • Supply chains, payments and cybersecurity
  • Travel and insurance matters
  • FCA advice for regulated firms/businesses

The BVCA will continue to monitor the situation and provide members with relevant information.

Summary

  • The Government advised that people should remain at home as much as possible. Local lockdowns are now in force where infections have spiked, and guidance from local authorities should be consulted if you are travelling to another part of the country.

  • The Prime Minister announced in June 2020 plans to allow a greater number of businesses to reopen for 4 July 2020, including restaurants, pubs, hair salons and overnight accommodation providers. On 14 September 2020, new restrictions were announced where people could not meet in groups larger than 6 in England and further local and nationwide measures are expected if cases continue to rise.

  • The Government has made the use of face masks on public transport mandatory from 15 June. The Government have asked that people work from home where possible and that people should only go to their places of work if this is not possible. Guidance has been published for employers to ensure safe working.

  • The FCO updated its advice against non-essential travel to exempt destinations that no longer pose a large risk for British travellers. These exemptions were introduced on 4 July and the advice will remain under review to account for changing situations globally. All non-essential travel to non-exempted countries remains to be advised against. The list of exempted countries can be found here.

  • The Job Retention Scheme will end in October 2020 and the Government announced a new employment scheme in its Winter Economy Plan. The new initiative replaces the furlough scheme and will see the government pay 22% of wages for the next six months, providing certain criteria are met.

  • The FCA has published expectations and guidance for firms in response to coronavirus.

  • Special Coronavirus IPEV Valuation Guidelines have been published to support firms filing valuation for March 2020.

  • HMRC has updated the company residence and permanent establishment rules.

  • The FRC have published updated guidance Modified Audit Opinions for use during the Coronavirus crisis.

Financial support

In response to the global outbreak of COVID-19, the Chancellor has introduced a number of initiatives to help businesses access financial support to cover business interruption due to Coronavirus. Further measures were announced on 24 September as part of the Winter Economy Plan. The measures to date are as follows:

  • The Bounce Bank Loan Scheme was announced in Parliament by the Chancellor on 27 April and aims to provide additional support to the smallest businesses on top of the existing measure. This scheme will be backed by a 100% government-guarantee for lenders for the first 12 months. Companies will be able to apply for up to 25% of their turnover using the micro-loan scheme between £2000 and £50000. The scheme has been extended until 30 November 2020 for new applications.

  • On 17 April, the Chancellor launched the Future Fund which included £500m of support early-stage and high-growth companies. The Future Fund is a convertible loan scheme matching private investment from £125,000 to £5m. To be eligible the business must be unlisted and previously raised at least £250,000 in equity investment in the last five years. £750m of support was also announced for support for SMEs focusing on research and development. The Fund will be open to applications until 30 November 2020 and the eligibility criteria can be found here.

  • On 3 April, the Chancellor announced a new Coronavirus Large Business Interruption Loan Scheme (CLBILS) to support businesses with turnover of over £45m. This was launched on Monday 20 April for loans up to £50m. However, from 26 May application for loans up to £200m will be available to ensure large businesses have the finance to meet cashflow needs. There will no upper limit on business turnover. The loan notes will automatically convert into an equity stake unless repaid. Loans backed but the guarantee until CLBILS will be offered at commercial rates of interest. Businesses’ eligibility will be determined in their own right, rather than that of the private equity fund they are backed by.

  • The British Business Bank is delivering a temporary Coronavirus Business Interruption Loan Scheme (CBILS). The scheme will support up to £5m through existing lenders, guarantee up to 80% of losses with no fees, and be interest free for the first 12 months. The scheme will temporarily replace the Enterprise Finance Guarantee. The British Business Bank has published FAQs on eligibility criteria and implementation and the FCA has provided guidance to lenders for this scheme. 

  • On 24 September 2020, the Chancellor extended the deadline for portfolio company applications to the Government’s Covid loan schemes (CCFF, CBILS, CLBILS and BBLS) to 30 November and extended the maximum term lenders can offer under CBILS from six to ten years. At the same time, the British Business Bank has announced more flexibility on the assessment date for the test of whether a business is an ‘undertaking in difficulty’ under EU state aid rules. This may pave the way for some portfolio companies to undergo restructurings that could allow them to access the CBILS or CLBILS. 

  • The Coronavirus Job Retention Scheme has been replaced by the Job Support Scheme as announced in September in the Winter Economy Plan. The new initiative replaces the furlough scheme and will see the government pay 22% of wages for the next six months, providing certain criteria are met. Further details of the new scheme can be found here.

  • Deference of Value Added Tax (VAT) payment for 3 months for all UK businesses. There will be no payments between now and the end of June and businesses will have until April 2021 to pay this. This includes a HMRC Time to Pay helpline service for eligible businesses and self-employed individuals to receive support with tax liabilities. Increasing the Business Rate Retail discount in England to 100% for the year 2020/21 for all retail, leisure and hospitality businesses. In addition, there will up to a £25,000 grant provided to retail, leisure and hospitality with rateable value of £15,000-£51,000. Devolved Administrations (Scotland, Wales & N.Ireland) will receive at least £3.5bn in additional funding to support business in these areas. As part of the Winter Economy Plan, the Government announced that it will give businesses which deferred VAT due in March to June 2020 the option to spread their payments over the financial year 2021-2022. Businesses are advised to contact their local council for more information on eligibility or provisions and HMRC will provide further updates on repayments in early 2021.

  • A £10,000 cash grant for small businesses provided by local authorities. Small businesses that pay little or no business rates and are eligible for small business rate relief (SBBR) or rural rate relief will be contacted by their local authority - they do not need to apply.

  • Other schemes available include the Self-Employment Income Support Scheme to support self-employed people who have lost income due to Coronavirus; the Covid-19 Corporate Financing Facility, providing funding to larger businesses through commercial paper; and the Term Funding Scheme offering four-year funding of at least 10% of participants’ stock of real economy lending at interest rates at, or very close to, Bank Rate.



Safer Working during the pandemic and rebuilding the economy

The Government has advised that people should remain at home as much as possible. Local lockdowns are now in force across the UK where infections have spiked, and guidance from local authorities should be consulted if you are travelling to another part of the country. On 14 September 2020, restrictions were announced where people could not meet in groups larger than 6 in England and further local and nationwide measures are expected if cases continue to rise. 

The Government has made the use of face masks on public transport mandatory from 15 June. The Government also encouraged those who cannot work from home to go to work and guidance has been publishedfor employers to ensure safe working.

The Government published guidance and FAQs on social distancing as well as the UK’s plan to rebuild the economy:

The Government’s “roadmap” committed to gradually rebuilding the economy and reopening society with caution, and that any flexibility in lifting the measures will be advised by the data and scientific evidence, including the new COVID-19 centre and alert system. This 5 tier alert system will only be reduced to level 3 if people continue to limit contact with others to ensure the reproduction rate ( R ) continues to decline. Within these plans, the Government announced the immediate changes to the measures above but also outlined plans for younger pupils and those with exams to return to school before the Summer holiday. In the third stage of relaxation, some sporting events could begin behind closed doors and some businesses and hospitality spaces can start to reopen.

The Government warned that stricter measures would be reintroduced, if the data suggested it was necessary.

The Government has also published guidance for employers, employee and the self-employed in various work environments to understand how they can mitigate safety risks when working during the pandemic. The guidance suggests measures for social distancing, travelling to and from work and working capacity. The guides cover the following working environments, and more than one guide may need to be used to consider the action to be taken for an individual business:

The BVCA gave feedback to the Department for Business, Energy and Industrial Strategy. The portal for feedback remains open and we will continue to feedback anonymised experiences from our members’ portfolio companies on using the above guides.


Other general guidance for employers

The Government has also published guidance specific to sectors that might see greater adverse impacts and may need to have greater precautions, such as healthcare, education and transport sectors. See the links below for sector specific guidance.

Invest Europe has published information for its members on the policy measures being taken across markets in Europe.


 
 

Corporate Insolvency Rules

On 28 March, the Government announced that it was suspending the wrongful trading law within insolvency rules to protect directors of companies who pay staff and suppliers despite insolvency risks. The changes are temporary for businesses undergoing a restructuring process, in this time they will not be put into administration and will continue be able to access raw materials.

The Department for Business, Energy and Industrial Strategy has now published the Corporate Insolvency and Governance Bill. This includes the above temporary suspension of the wrongful trading laws and a moratorium on the filing of winding up petitions by creditors would help businesses buy crucial time to mitigate the impact of the liquidity crises they are facing. BEIS have also published factsheets to provide an overview and some clarity on the detail of the Bill.

We believe the suspension of the wrongful trading legislation and moratorium are positive and if there is scope to issue guidance for directors and amend legislation in respect of directors’ duties, that would provide crucial further support. We sent representations to BEIS and the Insolvency Service who acknowledged our feedback and we are continuing our dialogue with them as the Bill progresses.


HMRC Company Residence and Permanent Establishment Rules

HMRC have updated the company residence and permanent establishment rules in response the Coronavirus outbreak. HMRC stated that it believes the existing guidance and legalisation provides enough flexibility for businesses to deal with changes in activity due to the outbreak and that board meetings held within the UK during this time does not qualify a company for residence. The update also noted that the existence of a UK permanent establishment does not mean that significant elements of the profits of the non-resident company would be taxable in the UK.


Auditing and Valuations

The International Private Equity and Venture Capital Valuation Guidelines (IPEV) has published further guidance for firms regarding valuations in light of the Coronavirus.

The BVCA has been speaking to audit firms about the impact on audit opinions:

  • Many portfolio companies with secured lending require an audit within 120 days of the year end otherwise it is a covenant breach.
  • For December year ends, directors and auditors are being put in a difficult position as there is no central economic base case on which to build the going concern analysis that is required when preparing financial statements and auditing them.
  • The FCA has given listed companies a two month extension and a similar position is required for private companies.

The Financial Reporting Council published guidance on audit issues arising from the Coronavirus pandemic. Audits should continue to comply fully with required standards. In current circumstances, additional time may be required to complete audits and it is important that this is taken, even at the risk of delaying company reporting. The FRC is considering additional guidance that may be necessary to support delivering audits in the next few months.

On 21 April, the FRC published further guidance on Modified Audit Opinions during the crisis.

The ICAWE has published insight and further information on Coronavirus and its potential impact on audits and auditors.


Supply chain, payment and cybersecurity concerns

Supply chain

According to the CBI, supply chain disruption has been significant, particularly manufacturing and logistics firms across different sectors. It had been mainly in China but production within Europe is now being directly hit. Some firms are utilising existing stockpiles and some firms have been able to source replacement components from elsewhere, but have had to consider cashflow, timing and margins of projects.


Payments

The Small Business Commissioners Office will continue to support businesses with invoice, payment and supply chain issues.


Cybersecurity

As a result of the Coronavirus, there is an increased risk of fraudulent activity. The charity anti-fraud Take Five has published advice to help increase awareness and inform businesses of the steps they can take to protect themselves during the outbreak.


Travel and Insurance concerns

Travel

The FCO updated its advice against non-essential travel to exempt destinations that no longer pose a large risk for British travellers. These exemptions were introduced on 4 July and the advice will remain under review to account for changing situations globally. All non-essential travel to non-exempted countries remains to be advised against. The list of exempted countries can be found here.

  • Information for British citizens travelling abroad
  • Avoid travel to second homes
  • Foreign Travel Advice for each country

  • Insurance

    On 17 March, the Chancellor announced that all measures put in place by the Government will qualify businesses to claim on their insurance. The Association of British Insurers has published a Q&A on Coronavirus, providing guidance on concerns around business insurance. The document also covers: travel insurance; trade credit insurance; pensions and investments; and income protection.


    FCA advice for regulated firms

    The FCA has published detailed information setting out its expectations for firms during the Coronavirus outbreak and how it intends to operate as the situation develops. It has stated that it expects firms to be taking reasonable steps to ensure they are prepared to meet the challenges presented by Coronavirus for business continuity. The FCA is also expecting firms to support customers and small businesses during this period, ensure that they remain transparent. The FCA have also published guidance of specific aspects of regulation such as SM&CR responsibilities, regulatory changes and insurance products. Firms are encouraged to ensure they are managing their financial resilience and liquidity, and to report to the FCA if firms believe they will face difficulties. In terms of how the FCA will operate, it has announced that it has extended the closing date for responses to all open consultation papers until 1 October 2020 and is rescheduling most other planned work.



    Last updated: 06 July 2020

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    FOR FURTHER INFORMATION PLEASE CONTACT THE BVCA

     +44 (0)20 7492 0400

     policy@bvca.co.uk