Are you ready for the avalanche?


At Credebt we always believe that one should hope for the best and prepare for the worst. As the UK is slowly coming out of the crisis phase of the pandemic, and business is getting ready to open up again, we foresee an avalanche of insolvencies coming in the not-too-distant future. Here’s why:

Deferred VAT needs to be repaid

From 1 April 2021, any VAT that was deferred from last year will need to be repaid. And even though businesses will have the option to spread out the payments, they will nonetheless have to be made. There will be many businesses that won’t be able to make these payments.

End of Bounce Back Loans and CBILS

The Bounce Back Loans and CBILS will end on 31 March 2021, after which companies will have the choice of applying for Recovery Loan Scheme funding, where details of eligibility are still uncertain and will require repayments to start immediately. Or they need to go back onto the open market if they need finance, where they will find that the new conditions are not as favourable as with these government-supported loans.

Loans need to be repaid

Not only do the BBLs and CBILS end on 31 March, but from 1 April the first ones will need to be repaid. At the same time as having to pay the deferred VAT, businesses will have to start paying back the loans. For some, this will be too much.

VAT reversal for construction companies

From 1 April 2021, the VAT reverse charge for construction companies comes into force. That means that from that date, construction companies can no longer use the VAT they charged to prop up their finances, as they have traditionally done. This will without doubt create serious problems for quite a few construction companies, some of whom won’t survive.

Change in pre-pack administration rules

From 1 May 2021 the change in the rules around pre-pack administrations means that it not quite as easy to do a ‘dump and roll’ to get rid of debts.

The new rules are as follows: 

  • An administrator will be unable to make ‘substantial disposal’ of property of a company to a person connected with the company within the first eight weeks of the administration, without either the approval of creditors or an independent qualifying report produced by an evaluator.
  • The connected party purchaser will be required to obtain the qualifying report and provide a copy to the administrator.
  • A connected party purchaser may obtain more than one qualifying report.
  • Where a qualifying report states that the case is not made for the support of the substantial disposal, an administrator can still proceed with the substantial disposal. However, they will be required to provide a statement setting out the reasons for doing so.
  • The provider of the independent qualifying report (the evaluator) must be independent of the connected party purchaser, the company and the administrator.
  • The administrator must send to every creditor of the company, other than opted-out creditors, a copy of the report. If more than one report was received, then they must send all the reports.

This will mean that Pre-Packs are under intense scrutiny, just at a time when they are likely to be most needed.

High incidence of undiscovered Fraud

Fraud has increased dramatically over the last year, partly because of all the government support available, and partly because there have been fewer checks and controls due to people having a reduced workforce.

You may think that your clients sit within their formulas if they’re only utilising 65% of the facility, but if half of this is made up of fraudulent invoices, you are in big trouble. When was the last time you were able to check up on your clients?

Brexit red tape & costs

And finally (who would have thought it?): Brexit. Flying slightly under the radar due to the even bigger problem of the pandemic, are the issues with Brexit. It is already creating a huge amount of red tape for businesses, and together with shipping and port challenges, this is creating insurmountable barriers for some businesses, which will lead to some of them having to fold.

And whilst all of this may be good news for Insolvency Practitioners and Debt Collection Agencies, this is most definitely not good news for Funders, as they may find their capital at risk.

What you should do now

Don’t sleepwalk into a disaster. Make sure that you are prepared and that you know exactly what your position is so that you can take pre-emptive action if needed.

Take action today. Get us to do a completely Free Debtor Collateral Review, so that you know exactly if your clients have committed fraud, or if they are in trouble because of any of the aforementioned issues.

We can be on-site, or work remotely if preferred, within 48 hours and will be able to give you a report the same day so that you know where you stand, along with our suggestions for improvements required.

Call us on 0845-6385256 or email

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