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How to Address the Imbalance Sheet 

Over the past year in the UK, a wide range of corporates have been supported by a stream of government enforced initiatives designed to stabilise and support businesses during the height of the COVID-19 pandemic. Much of the support available to these businesses has been through various debt products which the government introduced to give businesses the best chances of survival during such unprecedented times. These included: 

  • Coronavirus Business Interruption Loan Scheme (CBILS: allowing businesses to access financial support up to £5 million. The government guarantees 80% of the finance to the lender and pays interest and any fees for the first 12 months.) 
  • Coronavirus Large Business Interruption Loan Scheme (CLBILS: allowing businesses to access financial support with a group turnover of more than £45 million. The scheme helps medium and large sized businesses to access loans and other kinds of finance up to £200 million.)  
  • Bounce Back Loan Scheme (the biggest advantage of the BBLS was that it didn’t require repayments during the first 12 months but allowed businesses to access financial help quickly during the pandemic. The scheme helps small and medium-sized businesses to borrow between £2,000 and up to 25% of their turnover. The maximum loan available is £50,000.)

All of these government backed financial sources were made available to eligible businesses through to March 2021 with new applications and Top Up applications closing in the same month. These products were specifically designed to minimise the damage caused by the significant disruption to business during the pandemic and reduce risks felt by the subsequent government enforced lockdowns. Of course, these government initiatives may have had an impact on the growth of the UK economy as a whole, which has slowly increased since the beginning of 2021 and the easing of general restrictions. For example, according to the Office of National Statistics, by early August 2021, the percentage of UK businesses trading rose to 89% from 71% in January 2021.  

In addition, temporary and permanent changes in legislation over the last 12 months has sought to provide directors and corporates with additional financial protective measures which in turn has prevented a significant level of insolvencies from occurring. As well as being able to access government loan schemes, many businesses also took advantage of the furlough scheme which enabled employers to retain staffing levels and thus allow a return to work for employees post pandemic. This also meant that businesses could reduce the risk of redundancies and stand an overall better chance of survival.  

The consequence of loan scheme initiatives provided by the UK government since the outset of the Covid 19 pandemic has ultimately led to a substantial increase in the level of liabilities on the balance sheets of UK corporates. This necessary liquidity has largely been obtained through extending credit lines with HMRC, suppliers, landlords and increased bank borrowing. All of which must be repaid by businesses which was expected however, the repayments are required over a relatively short period of time and perhaps what’s worse, is that this comes at a point when there remains an inherent level of uncertainty over the outlook of the market. Even in areas seeing the most growth.  

The future for many UK businesses still looks uncertain, despite the succession of UK government loan schemes. The edge had been taken off the pandemic for businesses through these loans, but the sheets remain unbalanced. With inflation high and 1 in 50 business still reporting that they expect to make some of their workforce redundant over the next three months as we move into the last quarter of 2021, the forecast for UK corporates still looks uncertain.  

What Next? 

There is no question, communication still remains key in today’s economic climate for UK corporates both internal and external meaning it is critical that businesses maintain regular and honest communication with their key stakeholders to ensure they all remain informed and supportive of the direction being taken. No matter where the road eventually takes them.  

Perhaps more so than ever, it is imperative that directors of corporates proactively plan for the challenges ahead as they navigate their way out the other side of the COVID-19 pandemic. Focused thinking, strategic planning and an understanding may well be the keys to a profitable and brighter future. As they move forward it will be important to consider the make-up of their balance sheet, how it has evolved over the past 12 months and what actions need to be taken to address that imbalance now and in the future.  

In most circumstances, the amount of current liabilities has disproportionately increased to a point where the level of support from these stakeholders has been maximised and the expectation that it would actually begin to unwind within a relatively short period of time. However, realistically this may not be possible for most corporates depending on the sector, liquidity status and profitability levels. 

Therefore, where necessary, directors should consider the options available to restructure the balance sheet to become more aligned to the cash flow needs of the business. This may include reducing or even normalising their current liabilities with a more manageable longer-term debt solution, should lockdowns happen again in the future. This means they will be able to stand stronger and face future challenges with greater foresight and understanding, even if it means considering traditional sources of finance and/or a recapitalisation through equity means. 

In certain circumstances neither of these options may be available or deemed suitable, and that may well have been in the past. Not all businesses will find themselves in the same boat, post pandemic. Some may find that the road to recovery is steeper than others foreseeing tighter future budgets as a result of schemes ending.  

As a consequence, the government has introduced a new Recovery Loan Scheme which is designed to help businesses of any size as they grow and recover from the disruption of the pandemic. This is a government backed loan scheme supporting borrowing of up to £10m for individual businesses and up to £30m across a group. The use of these proceeds can include cash flow management, growth and investment.  

We therefore thoroughly recommend that directors complete a comprehensive and critical assessment of their business and forecast to ensure timely and appropriate action is taken where needed to create a stable and manageable platform not only to financially support their businesses and assets but to more importantly, safeguard the longevity of their business for a brighter future.  


Martin Gray, Managing Director in the Restructuring Advisory practice at Kroll

Martin Gray