This memorandum is up-to-date as at 18:00 (GMT) on Monday 23rd March 2020. This update serves as a follow up to the memorandum dated 20th March 2020. We have indicated where a material update has been made to the information provided in our 20th March 2020 memorandum. This does not constitute an exhaustive list of measures proposed by the UK Government. The public guidance is being continually updated by the UK Government, HM Treasury and the Bank of England which is being closely monitored.
- Summary
1.1.On 23 March 2020, the Bank of England (“BoE”) published supplementary guidance and documentation in respect of measures announced on 20 March 2020 and 17 March 2020 respectively, aimed at helping businesses combat the economic shock caused by the COVID-19 epidemic.
1.2.Though by no means an exhaustive list of the newly available measures to assist business and workers, the following is an outline of the key measures:
1.2.1.the government backed Coronavirus Business Interruption Loan Scheme (“CBILS”) for SME’s via participating lenders;
1.2.2.the joint HM Treasury and Bank of England Covid-19 Corporate Financing Facility (“CCFF”) to support liquidity in larger businesses through quick access to low cost, commercial paper;
1.2.3.the Coronavirus Job Retention Scheme (“CJRS”) to cover up to 80% of the wages of workers furloughed but retained on payroll; and
1.2.4.deferment of VAT payments for the next quarter.
1.3.Access to funding under the CBILS and CCFF schemes is now available.
1.4.Terms and conditions and final documentation have been made available in respect of the CCFF.
1.5.Timing in respect of the CJRS is less clear with the expectation that the first grants under the scheme will be paid “within weeks” and to be fully operational by the end of April.
- CCFF Summary
2.1. Scope
2.1.1.The aim of the scheme is to provide liquidity to larger businesses by the direct purchase by the BoE on behalf of HM Treasury of their commercial paper (“CP”). The updated press release from the BoE can be seen here along with a letter from the Chancellor to the Governor of the BoE and a letter from the Governor of the BoE to the Chancellor confirming the same.
2.1.2.The intention is that the facility will look through temporary impacts on firms’ balance sheets and cash flows by basing eligibility on firms’ credit ratings prior to the COVID-19 shock.
2.1.3.The scheme is currently expected to operate for at least the next 12 months, with the BoE committing to six months’ notice of any withdrawal.
2.1.4.Financing under the CCFF will be obtained via application to the BoE through their banks. The application forms have now been made available1.
2.2. Eligibility of Issuer
2.2.1.The CCFF will purchase CP on the primary market from businesses making a material contribution to the UK economy and the secondary market from eligible institutions.
2.2.2.The concept of material contribution to the UK economy has not been defined to date but the BoE has indicated the below factors as being indicative of a business reaching this threshold, with decisions to be taken on by the BoE’s risk management staff.
2.2.2.1.UK incorporated companies, including those with foreign-incorporated parents and with a genuine business in the UK;
2.2.2.2.companies with significant employment in the UK or with their headquarters in the UK; and
2.2.2.3.consideration will be given to whether the company generates significant revenues in the UK, serves a large number of customers in the UK or has a number of operating sites in the UK.
2.2.3.A business wishing to obtain funding from the CCFF need not have issued CP previously but access to funding is to be granted on terms equivalent to those prevailing on the market prior to the COVID-19 outbreak and will only be open to companies able to demonstrate their sound financial health prior to the economic shock COVID-19 has caused.
2.2.4.In practical terms, to demonstrate sound financial health a business will need to show an investment grade credit rating meaning a short-term rating of A3/P3/F3/R3 or above, or a long-term rating above BBB-/Baa3/BBB- by at least one of the major credit ratings agencies: S&P, Moody’s or Fitch2.
2.2.5.Where a business has different ratings from different agencies, and one of those is below investment grade then the commercial paper will not be eligible3.
2.2.6.The BoE will require businesses whose CP will be offered to the CCFF in the primary market to contact the BoE directly, to discuss its eligibility and to provide the necessary documentation. The BoE will require such businesses to sign a confidentiality agreement.
2.3. Eligibility of Security
2.3.1.To be eligible for the CCFF the CP must be sterling-denominated and conform to the following additional eligibility criteria:
2.3.1.1.a maturity of one week to 12 months if issued to the BoE at issue via a dealer. Drawings can be rolled while the CCFF is open, subject to eligibility;
2.3.1.2.where available, a minimum short-term credit rating of A-3 / P-3 / F-3 from at least one of Standard & Poor’s, Moody’s and Fitch as at 1 March 2020. The BoE and HMT will consider the eligibly of businesses at the lowest rating that were on negative watch or negative outlook as at 1 March 2020;
2.3.1.3.where a short-term credit rating is not available the BoE will consider whether a long-term credit rating can be used to assess eligibility and pricing, or whether the BoE can assess that the business is of equivalent financial strength; and
2.3.1.4.issued directly into Euroclear and/or Clearstream.
2.3.2.If a business is downgraded after 1 March 2020 below the minimum credit ratings set out above, the business will remain eligible for primary and secondary market purchase in the CCFF, subject to HM Treasury approval.
2.3.3.The BoE will not approve as any CP which has non-standard features such as extendibility, subordination etc.
2.3.4.Securities issued by a finance subsidiary should be guaranteed by their parent company in a form acceptable to the BoE.
2.3.5.Confirmation of the CP’s eligibility for the CCFF will be provided to the Counterparty submitting the request i.e. the business or their bank (the “Counterparty”). Where the BoE has provided this confirmation before 16:00, the business’s CP will be eligible for participation in the scheme from the following business day onwards.
2.4. Offers4
2.4.1.Once accepted onto the scheme, offers to sell CP under the CCFF will need to be submitted by phone to the BoE’s Sterling Dealing Desk between 10:00 am and 11:00 am. Counterparties can also submit offers using the email template provided on the BoE’s website, between 10.00am and 11.00am.
2.4.2.For primary market purchases, Counterparties must provide details of the issuing entity, the CP programme the securities are issued from, maturity date and the nominal amount offered. Maturity dates will follow the “modified following” convention. For secondary market sales, Counterparties must provide the ISIN and ticker of the security; the original issue price and date (or the money market yield on an amortised cost basis); the maturity date; and the nominal offered.
2.4.3.The minimum amount of any CP the CCFF will purchase is £1m nominal value and the offer should be expressed in increments of £0.1m nominal value. There is no operational limit on the amount of CP the BoE stands ready to purchase on a day to day basis5.
2.4.4.The BoE will confirm electronically or via phone if an offer has been accepted with the purchases normally settling on a T+ 2 basis.
2.4.5.The BoE will publish each Thursday at 3.00pm information on the use of the CCFF as follows:-
(i) the total amount of CP purchased that week up until the previous day, in terms of the amount paid to the sellers; and
(ii) the sum of CP purchased, less redemptions, since the CCFF began in March 2020.
2.4.6.The names of the Counterparties and securities purchased or eligible will not be disclosed publicly.
2.5. Pricing
2.5.1.No pricing schedule has been issued but the CCFF will purchase CP at a spread above a reference rate, based on the current sterling overnight index swap (OIS) curve.
2.6. Other
2.6.1.Applications to participate as Counterparties in the CCFF can now be made to the BoE but should be done via the business’s bank6.
2.6.2.The terms and conditions and operating procedures for the CCFF have now been published on the BoE’s website here.
2.6.3.The BoE reserves the right to reject applications without explanation.
2.6.4.Companies that do not currently issue CP but are capable of doing so, and of meeting the CCFF’s eligibility criteria, will be able to utilise the CCFF if they so choose. The BoE will discuss with these businesses their eligibility and access to the CCFF.
2.6.5.The BoE intends to close the CCFF to new purchases on 23 March 2021. The BoE will purchase securities with a maturity date beyond 23 March 2021 on any day up to and including 22 March 2021.7
- CBILS Summary
3.1. Scope
3.1.1.The aim of the scheme is to alleviate any issues SME’s have accessing credit during the COVID-19 outbreak via the government guarantee of 80%8 of the value of any loans issued under CBILS up to a value of £5m per borrower.
3.1.2.CBILS is intended to cover a wide range of funding, including term facilities, overdrafts, invoice finance facilities, and asset finance facilities.
3.1.3.The scheme is provided by the British Business Bank via participating lenders, a list of whom can be found here. It is worth noting however, that participating lenders may not individually cover all the forms of lending noted below.
3.1.4.The British Business Bank has provided a number of responses to FAQs which can be found here.
3.1.5.The business will remain liable for the full capital sum of any loan granted under CBILS but the government will, in addition to guaranteeing the amount, pay the first 12 months’ of interest and any lender-levied fees on the loan.
3.1.6.The intention is that CBILS shall support a wide range of business finance products, including:
3.1.6.1.term facilities;
3.1.6.2.asset finance facilities;
3.1.6.3.overdrafts; and
3.1.6.4.invoice finance facilities
3.1.7.Terms of financing covered can be up to six years in respect of term facilities and asset financing, and up to three years for overdrafts and invoice financing facilities9.
3.2. Eligibility of Borrower10
3.2.1.To be eligible, the a business must meet the below criteria, though additional elements may be announced:
3.2.1.1.it must be UK based, with turnover of no more than £45m11 per annum;
3.2.1.2.it must generate more than 50% of its turnover from trading activity;
3.2.1.3.the CBILS-backed facility will be used to support primarily trading in the UK;
3.2.1.4.it must operate within an eligible industrial sector. A small number of industrial sectors are not eligible for support including banks, building societies, insurers and reinsurers (though not insurance brokers); the public sector and membership organisations or trade unions;
3.2.1.5.be able to confirm that they have not received EU de minimis State aid beyond €200,000 equivalent over the current and previous two fiscal years; and
3.2.1.6.have a sound borrowing proposal which, were it not for the COVID-19 epidemic, would be considered viable by the lender, and for which the lender believes will allow the business to trade out of any short-to-medium term difficulty.
3.2.2.Final decisions on eligibility have been entirely delegated to the accredited lenders and will be decided on a case by case basis. Borrowers should reach out to their usual lenders to discuss their eligibility. The British Business Bank has published a quick guide to eligibility which can be found here.
3.3. Access to CBILS
3.3.1.Funding is accessed by application to participating lending institutions. The British Business Bank does not offer any specific guidance and instead notes that businesses should approach any participating lender and discuss their borrowing needs. An application should take no longer than a standard application.
3.3.2.If the accredited lender can offer finance on normal commercial terms without the need to make use of the scheme, they will do so. The CBILS will only be used by lenders in circumstances where the credit decision would otherwise be negative to ensure those small businesses with a sound borrowing proposal but insufficient security are still able to access financing12.
3.3.3.It is worth noting the following:
3.3.3.1.The CBILS guarantee is to the lender and not the business.
3.3.3.2.As with any other commercial transaction, the borrower is always 100% liable for repayment of the facility supported by CBILS.
- CJRS Summary
4.1. Scope
4.1.1.The government will pay by grant 80% of any worker’s wages, up to a maximum of £2,500 per month, for any worker a business furloughs but retains.
4.1.2.The scheme will cover workers who were on the payroll as at 28 February 2020 and it will cover the cost of wages backdated to 1 March 2020 and will be open for an initial period of 3 months, though this will be extended as necessary.
4.1.3.No funding limit has been set on the amount of funding to be granted under the scheme.
4.2. Eligibility
4.2.1.All UK employers are eligible to claim the grants in respect of retained but furloughed workers.
4.3. Access to CJRS
4.3.1.Employers will need to designate individual employees that they would otherwise have let go as “furloughed workers” and notify HMRC of this change via an online portal to be set up.
4.3.2.HMRC will reimburse the employer for 80% of the wages of any furloughed employee up to a monthly maximum of £2,500 per employee. HMRC has not yet set up a payments system to facilitate these reimbursements but is working on doing so.
4.4. Employment Law Issues13
4.4.1.Some issues are unclear and further details are expected in the next few days.
4.4.2.To be furloughed, the employees must not be working at all, but remain on the employer's payroll.
4.4.3.Changing the status of an employee is subject to existing employment law and the ability to do so will depend on the terms of the employee's employment contract:
4.4.4.Employment contracts don't usually contain an employer's right to change an employee's status or to temporarily lay off employees for whom there is no work. Where there is no such express right, employees will need to agree the change, or employer's will need to introduce the change on contractual notice.
4.4.5.Unilaterally imposing the change will risk employees resigning to claim wrongful dismissal and (if 2 years’ qualifying service) unfair dismissal or claim damages or unlawful deduction from wages for the balance of contractual salary. It is more likely that employees will accept the change to become furloughed rather than redundancy.
4.4.6.It is not yet clear whether a furloughed employee ceases to qualify for the CJRS if the employer serves notice of dismissal. This is likely to be regulated or an employer can designate an employee with furlough status, claim the grant, serve notice and use the grant to pay for dismissal.
4.4.7.The definition of “wage costs” is unclear. Current government guidance states the grants will cover 80% of wages for all employment costs, which implies the CJRS would cover pension and National Insurance contributions.
4.4.8.Government guidance states that employers can “choose” to fund the difference between normal salary contractually due under the contract and the 80% grant, but do not have to do so. Employers need to reach and record agreement with furloughed employees to waive all or part of the excess over the value of the grant.
4.4.9.The selection of furloughed, retained and redundant employees could cause disaffection e.g. from retained employees who are not sent home on 80% wages for no work at all. The current guidance does not refer to any requirement to adopt fair criteria to make those decisions, to which normal discrimination laws would apply.
4.4.10.No grant is available in respect of employees who continue to work normal or reduced hours, e.g. agreed short time working. Furloughed employees cannot undertake any work for the employer i.e. the grant cannot be used to top-up or subsidise the wages of employees who remain at work. The solution may be to rotate workers on furlough with those on short time working to but this would be an administrative burden for employers.
4.4.11.The CJRS is likely to be regulated to prevent exploitation by employers claiming workers are furloughed when they remain in work.
4.4.12.It is unclear how will the CJRS will apply to workers on zero-hours contracts or already on short-time working.
- Deferral of VAT Payments
5.1. Scope
5.1.1.No VAT payments will be payable by businesses from 20 March 2020 to 30 June 2020.
5.1.2.Following 30 June 2020 VAT payments will be payable as normal and businesses will then have until 5 April 2021, the end of the 2020-21 tax year, to pay any liabilities that accrued during the deferral period. Note, it is expected that is a deferment of an obligation to make VAT payments, not a waiver of any such obligation.
5.2. Eligibility
5.2.1.All UK businesses are eligible.
5.3. Access to the Scheme
5.3.1.Access to the deferral is automatic; businesses simply need not make any VAT payments to HMRC that would ordinarily have been required during this period.
5.3.2.HMRC will continue to pay any VAT refunds and reclaims as normal.
- Useful Links
6.1. General
6.1.2.https://www.iod.com/iod-coronavirus-support-hub/government-support
6.2. CCFF:
6.2.3.https://www.bankofengland.co.uk/markets/market-notices/2020/ccff-market-notice-march-2020
6.2.4.https://www.ft.com/content/bfb22e3e-6921-11ea-800d-da70cff6e4d3
6.3. CBILS
6.3.2.https://www.british-business-bank.co.uk/wp-content/uploads/2020/03/CBILS-Toolkit-v22-FINAL.pdf
6.3.3.https://www.gov.uk/government/speeches/chancellor-of-the-exchequer-rishi-sunak-on-covid19-response
_____________________________
1This information has been updated since the memorandum of 20th March 2020
2This information has been updated since the memorandum of 20th March 2020.
3This information has been updated since the memorandum of 20th March 2020.
4This information has been updated since the memorandum of 20th March 2020.
5This information has been updated since the memorandum of 20th March 2020.
6This information has been updated since the memorandum of 20th March 2020.
7This information has been updated since the memorandum of 20th March 2020.
8Note that this was previously stated to be 100% but has since been reduced to 80%.
9This information has been updated since the memorandum of 20th March 2020.
10This information has been updated since the memorandum of 20th March 2020 and provides for further eligibility criteria. It is expected that further criteria may be imposed for eligibility.
11Note that this has been increased from £41m.
12This information has been updated since the memorandum of 20th March 2020.
13This section has been added since the memorandum of 20th March 2020.
The views expressed herein are solely the views of the authors and do not represent the views of Brown Rudnick LLP, those parties represented by the authors, or those parties represented by Brown Rudnick LLP. Specific legal advice depends on the facts of each situation and may vary from situation to situation. Information contained in this article may be incomplete and is not intended to constitute legal advice by the authors or the lawyers at Brown Rudnick LLP, and it does not establish a lawyer-client relationship.
This memorandum is up-to-date as at 18:00 (GMT) on Monday 23rd March 2020. This update serves as a follow up to the memorandum dated 20th March 2020. We have indicated where a material update has been made to the information provided in our 20th March 2020 memorandum. This does not constitute an exhaustive list of measures proposed by the UK Government. The public guidance is being continually updated by the UK Government, HM Treasury and the Bank of England which is being closely monitored.
- Summary
1.1.On 23 March 2020, the Bank of England (“BoE”) published supplementary guidance and documentation in respect of measures announced on 20 March 2020 and 17 March 2020 respectively, aimed at helping businesses combat the economic shock caused by the COVID-19 epidemic.
1.2.Though by no means an exhaustive list of the newly available measures to assist business and workers, the following is an outline of the key measures:
1.2.1.the government backed Coronavirus Business Interruption Loan Scheme (“CBILS”) for SME’s via participating lenders;
1.2.2.the joint HM Treasury and Bank of England Covid-19 Corporate Financing Facility (“CCFF”) to support liquidity in larger businesses through quick access to low cost, commercial paper;
1.2.3.the Coronavirus Job Retention Scheme (“CJRS”) to cover up to 80% of the wages of workers furloughed but retained on payroll; and
1.2.4.deferment of VAT payments for the next quarter.
1.3.Access to funding under the CBILS and CCFF schemes is now available.
1.4.Terms and conditions and final documentation have been made available in respect of the CCFF.
1.5.Timing in respect of the CJRS is less clear with the expectation that the first grants under the scheme will be paid “within weeks” and to be fully operational by the end of April.
- CCFF Summary
2.1. Scope
2.1.1.The aim of the scheme is to provide liquidity to larger businesses by the direct purchase by the BoE on behalf of HM Treasury of their commercial paper (“CP”). The updated press release from the BoE can be seen here along with a letter from the Chancellor to the Governor of the BoE and a letter from the Governor of the BoE to the Chancellor confirming the same.
2.1.2.The intention is that the facility will look through temporary impacts on firms’ balance sheets and cash flows by basing eligibility on firms’ credit ratings prior to the COVID-19 shock.
2.1.3.The scheme is currently expected to operate for at least the next 12 months, with the BoE committing to six months’ notice of any withdrawal.
2.1.4.Financing under the CCFF will be obtained via application to the BoE through their banks. The application forms have now been made available1.
2.2. Eligibility of Issuer
2.2.1.The CCFF will purchase CP on the primary market from businesses making a material contribution to the UK economy and the secondary market from eligible institutions.
2.2.2.The concept of material contribution to the UK economy has not been defined to date but the BoE has indicated the below factors as being indicative of a business reaching this threshold, with decisions to be taken on by the BoE’s risk management staff.
2.2.2.1.UK incorporated companies, including those with foreign-incorporated parents and with a genuine business in the UK;
2.2.2.2.companies with significant employment in the UK or with their headquarters in the UK; and
2.2.2.3.consideration will be given to whether the company generates significant revenues in the UK, serves a large number of customers in the UK or has a number of operating sites in the UK.
2.2.3.A business wishing to obtain funding from the CCFF need not have issued CP previously but access to funding is to be granted on terms equivalent to those prevailing on the market prior to the COVID-19 outbreak and will only be open to companies able to demonstrate their sound financial health prior to the economic shock COVID-19 has caused.
2.2.4.In practical terms, to demonstrate sound financial health a business will need to show an investment grade credit rating meaning a short-term rating of A3/P3/F3/R3 or above, or a long-term rating above BBB-/Baa3/BBB- by at least one of the major credit ratings agencies: S&P, Moody’s or Fitch2.
2.2.5.Where a business has different ratings from different agencies, and one of those is below investment grade then the commercial paper will not be eligible3.
2.2.6.The BoE will require businesses whose CP will be offered to the CCFF in the primary market to contact the BoE directly, to discuss its eligibility and to provide the necessary documentation. The BoE will require such businesses to sign a confidentiality agreement.
2.3. Eligibility of Security
2.3.1.To be eligible for the CCFF the CP must be sterling-denominated and conform to the following additional eligibility criteria:
2.3.1.1.a maturity of one week to 12 months if issued to the BoE at issue via a dealer. Drawings can be rolled while the CCFF is open, subject to eligibility;
2.3.1.2.where available, a minimum short-term credit rating of A-3 / P-3 / F-3 from at least one of Standard & Poor’s, Moody’s and Fitch as at 1 March 2020. The BoE and HMT will consider the eligibly of businesses at the lowest rating that were on negative watch or negative outlook as at 1 March 2020;
2.3.1.3.where a short-term credit rating is not available the BoE will consider whether a long-term credit rating can be used to assess eligibility and pricing, or whether the BoE can assess that the business is of equivalent financial strength; and
2.3.1.4.issued directly into Euroclear and/or Clearstream.
2.3.2.If a business is downgraded after 1 March 2020 below the minimum credit ratings set out above, the business will remain eligible for primary and secondary market purchase in the CCFF, subject to HM Treasury approval.
2.3.3.The BoE will not approve as any CP which has non-standard features such as extendibility, subordination etc.
2.3.4.Securities issued by a finance subsidiary should be guaranteed by their parent company in a form acceptable to the BoE.
2.3.5.Confirmation of the CP’s eligibility for the CCFF will be provided to the Counterparty submitting the request i.e. the business or their bank (the “Counterparty”). Where the BoE has provided this confirmation before 16:00, the business’s CP will be eligible for participation in the scheme from the following business day onwards.
2.4. Offers4
2.4.1.Once accepted onto the scheme, offers to sell CP under the CCFF will need to be submitted by phone to the BoE’s Sterling Dealing Desk between 10:00 am and 11:00 am. Counterparties can also submit offers using the email template provided on the BoE’s website, between 10.00am and 11.00am.
2.4.2.For primary market purchases, Counterparties must provide details of the issuing entity, the CP programme the securities are issued from, maturity date and the nominal amount offered. Maturity dates will follow the “modified following” convention. For secondary market sales, Counterparties must provide the ISIN and ticker of the security; the original issue price and date (or the money market yield on an amortised cost basis); the maturity date; and the nominal offered.
2.4.3.The minimum amount of any CP the CCFF will purchase is £1m nominal value and the offer should be expressed in increments of £0.1m nominal value. There is no operational limit on the amount of CP the BoE stands ready to purchase on a day to day basis5.
2.4.4.The BoE will confirm electronically or via phone if an offer has been accepted with the purchases normally settling on a T+ 2 basis.
2.4.5.The BoE will publish each Thursday at 3.00pm information on the use of the CCFF as follows:-
(i) the total amount of CP purchased that week up until the previous day, in terms of the amount paid to the sellers; and
(ii) the sum of CP purchased, less redemptions, since the CCFF began in March 2020.
2.4.6.The names of the Counterparties and securities purchased or eligible will not be disclosed publicly.
2.5. Pricing
2.5.1.No pricing schedule has been issued but the CCFF will purchase CP at a spread above a reference rate, based on the current sterling overnight index swap (OIS) curve.
2.6. Other
2.6.1.Applications to participate as Counterparties in the CCFF can now be made to the BoE but should be done via the business’s bank6.
2.6.2.The terms and conditions and operating procedures for the CCFF have now been published on the BoE’s website here.
2.6.3.The BoE reserves the right to reject applications without explanation.
2.6.4.Companies that do not currently issue CP but are capable of doing so, and of meeting the CCFF’s eligibility criteria, will be able to utilise the CCFF if they so choose. The BoE will discuss with these businesses their eligibility and access to the CCFF.
2.6.5.The BoE intends to close the CCFF to new purchases on 23 March 2021. The BoE will purchase securities with a maturity date beyond 23 March 2021 on any day up to and including 22 March 2021.7
- CBILS Summary
3.1. Scope
3.1.1.The aim of the scheme is to alleviate any issues SME’s have accessing credit during the COVID-19 outbreak via the government guarantee of 80%8 of the value of any loans issued under CBILS up to a value of £5m per borrower.
3.1.2.CBILS is intended to cover a wide range of funding, including term facilities, overdrafts, invoice finance facilities, and asset finance facilities.
3.1.3.The scheme is provided by the British Business Bank via participating lenders, a list of whom can be found here. It is worth noting however, that participating lenders may not individually cover all the forms of lending noted below.
3.1.4.The British Business Bank has provided a number of responses to FAQs which can be found here.
3.1.5.The business will remain liable for the full capital sum of any loan granted under CBILS but the government will, in addition to guaranteeing the amount, pay the first 12 months’ of interest and any lender-levied fees on the loan.
3.1.6.The intention is that CBILS shall support a wide range of business finance products, including:
3.1.6.1.term facilities;
3.1.6.2.asset finance facilities;
3.1.6.3.overdrafts; and
3.1.6.4.invoice finance facilities
3.1.7.Terms of financing covered can be up to six years in respect of term facilities and asset financing, and up to three years for overdrafts and invoice financing facilities9.
3.2. Eligibility of Borrower10
3.2.1.To be eligible, the a business must meet the below criteria, though additional elements may be announced:
3.2.1.1.it must be UK based, with turnover of no more than £45m11 per annum;
3.2.1.2.it must generate more than 50% of its turnover from trading activity;
3.2.1.3.the CBILS-backed facility will be used to support primarily trading in the UK;
3.2.1.4.it must operate within an eligible industrial sector. A small number of industrial sectors are not eligible for support including banks, building societies, insurers and reinsurers (though not insurance brokers); the public sector and membership organisations or trade unions;
3.2.1.5.be able to confirm that they have not received EU de minimis State aid beyond €200,000 equivalent over the current and previous two fiscal years; and
3.2.1.6.have a sound borrowing proposal which, were it not for the COVID-19 epidemic, would be considered viable by the lender, and for which the lender believes will allow the business to trade out of any short-to-medium term difficulty.
3.2.2.Final decisions on eligibility have been entirely delegated to the accredited lenders and will be decided on a case by case basis. Borrowers should reach out to their usual lenders to discuss their eligibility. The British Business Bank has published a quick guide to eligibility which can be found here.
3.3. Access to CBILS
3.3.1.Funding is accessed by application to participating lending institutions. The British Business Bank does not offer any specific guidance and instead notes that businesses should approach any participating lender and discuss their borrowing needs. An application should take no longer than a standard application.
3.3.2.If the accredited lender can offer finance on normal commercial terms without the need to make use of the scheme, they will do so. The CBILS will only be used by lenders in circumstances where the credit decision would otherwise be negative to ensure those small businesses with a sound borrowing proposal but insufficient security are still able to access financing12.
3.3.3.It is worth noting the following:
3.3.3.1.The CBILS guarantee is to the lender and not the business.
3.3.3.2.As with any other commercial transaction, the borrower is always 100% liable for repayment of the facility supported by CBILS.
- CJRS Summary
4.1. Scope
4.1.1.The government will pay by grant 80% of any worker’s wages, up to a maximum of £2,500 per month, for any worker a business furloughs but retains.
4.1.2.The scheme will cover workers who were on the payroll as at 28 February 2020 and it will cover the cost of wages backdated to 1 March 2020 and will be open for an initial period of 3 months, though this will be extended as necessary.
4.1.3.No funding limit has been set on the amount of funding to be granted under the scheme.
4.2. Eligibility
4.2.1.All UK employers are eligible to claim the grants in respect of retained but furloughed workers.
4.3. Access to CJRS
4.3.1.Employers will need to designate individual employees that they would otherwise have let go as “furloughed workers” and notify HMRC of this change via an online portal to be set up.
4.3.2.HMRC will reimburse the employer for 80% of the wages of any furloughed employee up to a monthly maximum of £2,500 per employee. HMRC has not yet set up a payments system to facilitate these reimbursements but is working on doing so.
4.4. Employment Law Issues13
4.4.1.Some issues are unclear and further details are expected in the next few days.
4.4.2.To be furloughed, the employees must not be working at all, but remain on the employer's payroll.
4.4.3.Changing the status of an employee is subject to existing employment law and the ability to do so will depend on the terms of the employee's employment contract:
4.4.4.Employment contracts don't usually contain an employer's right to change an employee's status or to temporarily lay off employees for whom there is no work. Where there is no such express right, employees will need to agree the change, or employer's will need to introduce the change on contractual notice.
4.4.5.Unilaterally imposing the change will risk employees resigning to claim wrongful dismissal and (if 2 years’ qualifying service) unfair dismissal or claim damages or unlawful deduction from wages for the balance of contractual salary. It is more likely that employees will accept the change to become furloughed rather than redundancy.
4.4.6.It is not yet clear whether a furloughed employee ceases to qualify for the CJRS if the employer serves notice of dismissal. This is likely to be regulated or an employer can designate an employee with furlough status, claim the grant, serve notice and use the grant to pay for dismissal.
4.4.7.The definition of “wage costs” is unclear. Current government guidance states the grants will cover 80% of wages for all employment costs, which implies the CJRS would cover pension and National Insurance contributions.
4.4.8.Government guidance states that employers can “choose” to fund the difference between normal salary contractually due under the contract and the 80% grant, but do not have to do so. Employers need to reach and record agreement with furloughed employees to waive all or part of the excess over the value of the grant.
4.4.9.The selection of furloughed, retained and redundant employees could cause disaffection e.g. from retained employees who are not sent home on 80% wages for no work at all. The current guidance does not refer to any requirement to adopt fair criteria to make those decisions, to which normal discrimination laws would apply.
4.4.10.No grant is available in respect of employees who continue to work normal or reduced hours, e.g. agreed short time working. Furloughed employees cannot undertake any work for the employer i.e. the grant cannot be used to top-up or subsidise the wages of employees who remain at work. The solution may be to rotate workers on furlough with those on short time working to but this would be an administrative burden for employers.
4.4.11.The CJRS is likely to be regulated to prevent exploitation by employers claiming workers are furloughed when they remain in work.
4.4.12.It is unclear how will the CJRS will apply to workers on zero-hours contracts or already on short-time working.
- Deferral of VAT Payments
5.1. Scope
5.1.1.No VAT payments will be payable by businesses from 20 March 2020 to 30 June 2020.
5.1.2.Following 30 June 2020 VAT payments will be payable as normal and businesses will then have until 5 April 2021, the end of the 2020-21 tax year, to pay any liabilities that accrued during the deferral period. Note, it is expected that is a deferment of an obligation to make VAT payments, not a waiver of any such obligation.
5.2. Eligibility
5.2.1.All UK businesses are eligible.
5.3. Access to the Scheme
5.3.1.Access to the deferral is automatic; businesses simply need not make any VAT payments to HMRC that would ordinarily have been required during this period.
5.3.2.HMRC will continue to pay any VAT refunds and reclaims as normal.
- Useful Links
6.1. General
6.1.2.https://www.iod.com/iod-coronavirus-support-hub/government-support
6.2. CCFF:
6.2.3.https://www.bankofengland.co.uk/markets/market-notices/2020/ccff-market-notice-march-2020
6.2.4.https://www.ft.com/content/bfb22e3e-6921-11ea-800d-da70cff6e4d3
6.3. CBILS
6.3.2.https://www.british-business-bank.co.uk/wp-content/uploads/2020/03/CBILS-Toolkit-v22-FINAL.pdf
6.3.3.https://www.gov.uk/government/speeches/chancellor-of-the-exchequer-rishi-sunak-on-covid19-response
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1This information has been updated since the memorandum of 20th March 2020
2This information has been updated since the memorandum of 20th March 2020.
3This information has been updated since the memorandum of 20th March 2020.
4This information has been updated since the memorandum of 20th March 2020.
5This information has been updated since the memorandum of 20th March 2020.
6This information has been updated since the memorandum of 20th March 2020.
7This information has been updated since the memorandum of 20th March 2020.
8Note that this was previously stated to be 100% but has since been reduced to 80%.
9This information has been updated since the memorandum of 20th March 2020.
10This information has been updated since the memorandum of 20th March 2020 and provides for further eligibility criteria. It is expected that further criteria may be imposed for eligibility.
11Note that this has been increased from £41m.
12This information has been updated since the memorandum of 20th March 2020.
13This section has been added since the memorandum of 20th March 2020.
The views expressed herein are solely the views of the authors and do not represent the views of Brown Rudnick LLP, those parties represented by the authors, or those parties represented by Brown Rudnick LLP. Specific legal advice depends on the facts of each situation and may vary from situation to situation. Information contained in this article may be incomplete and is not intended to constitute legal advice by the authors or the lawyers at Brown Rudnick LLP, and it does not establish a lawyer-client relationship.
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