Business Debt Hibernation – What impact will it have for your business

The Business Debt Hibernation Scheme is designed to give businesses breathing room to manage their debts and prevent them failing.  It is proposed that it will apply to all forms of entities with a legal personality and trusts and partnerships.

The Business Debt Hibernation Scheme is designed to give businesses breathing room to manage their debts and prevent them failing.  It is proposed that it will apply to all forms of entities with a legal personality and trusts and partnerships.

The key features of the proposal are:

• directors will have to meet a threshold before being able to access the Business Debt Hibernation regime and putting a proposal to their creditors
• creditors will have a month from the date of notification of the proposal to vote on it, with the proposal going ahead if 50% (by number and value) agree
• there will be a one month moratorium on the enforcement of debts from the date the proposal is notified, and a further 6 month moratorium if the proposal is passed.

The proposal is that Business Debt Hibernation (BDH) will have the following features:

• Be binding on all creditors subject to any conditions agreed with those creditors.
• A business in BDH will be able to continue to trade, subject to any terms agreed with creditors.
• Employees will continue to be paid.
• If a company’s creditors reject a BDH proposal, directors will still have the range of existing options available including trading on, entering voluntary administration and appointing a liquidator.
• Creditors (provided that they are unrelated to the company) who trade with a company in BDH will be exempt from the voidable transactions regime.  However, transactions will need to be made in good faith and without any intent to prejudice any other creditors of the company – in other words will need to be otherwise normal trading.

What does this mean for your business?
If you are running a business and can forsee that you are going to have issues managing your debts as a result of Covid-19 then this Scheme provides an opportunity for you to keep your business afloat.  The government is developing a proposal form that directors might use to put proposals to creditors.  If you need assistance with preparing the proposal or have difficulties dealing with creditors who may not agree to the proposed terms or who might seek to place unreasonable conditions on the BDH scheme, then we are able to assist you.

If you are a creditor of a business and are put on notice that the entity wants to enter into BDH then you may want to contact us for advice about how you should respond to the proposal.

If you have any queries about how the relief package might assist you, or concerns about the impact of COVID-19 on the operation of your business, contact us for further expert advice.

This article is current as at the date of publication and is only intended to provide general comments about the law. Harkness Henry accepts no responsibility for reliance by any person or organisation on the content of the article. Please contact the author of the article if you require specific advice about how the law applies to you.