BUSINESSES face a “huge” risk of insolvency the coming months as a host of factors combine to threaten their future, it is claimed.

Government support has kept thousands of firms from becoming insolvent in the Covid crisis – but there are warnings that the situation could worsen.

The Federation of Small Business has warned 250,000 small businesses could close this year.

The insolvency practice Antony Batty said there were four key factors putting extra pressure on businesses:

  • The first repayments falling due for coronavirus business interruption loans (CBILs)
  • Late payment of invoices
  • The January tax return deadline, although self assessment taxpayers will not be penalised if they complete their returns in February
  • The risk of directors not fulfilling their duties when insolvent.

Clive Fortis, of the Bournemouth office of Antony Batty, said: “The first CBIL repayments are now only three months or so away, which means that an extended lockdown period could force more businesses to the edge of insolvency as their income remains much reduced.

“It might well be that the government will act on this and extend the interest free period, but as things stand, such repayments could force companies into insolvency.”

He warned that directors had to tread carefully to avoid personal liability and the possibility of misfeasance claims, director disqualification or even prison.

“It is also worth highlighting that if CBILs are misused and the receiving company becomes insolvent, insolvency practitioners have statutory powers of investigation, with personal liability for directors again being a likely outcome for the outstanding loan,” he said.

He said the key “sins” to avoid were wrongful trading, which involves a company carrying on while insolvent; fraudulent training, where a director knows the business is insolvent and attempts to deny creditors what they are owed; creditor preferences, where one creditor is favoured over another; and transactions to dispose of assets at less than their value.

He added: “Directors must always be aware of their company’s financial position. Pleading ignorance is no excuse. Indeed, failure to recognise that a company is in financial difficulties is likely to be seen as irresponsible, negligent and proof of ‘unfit conduct’ by the directors.”