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COVID-19: Business debt hibernation

Business debt hibernation helped companies and other entities affected by COVID-19 to manage their existing debts until they could start trading normally again. For example, businesses may have agreed with creditors to delay repaying some of their debt.

Business debt hibernation has now ended for all businesses

Business debt hibernation has now ended for all businesses

What was business debt hibernation

Business debt hibernation was a government initiative created in response to COVID-19. It helped companies, trusts, and other business entities affected by COVID-19 to manage their debts.

If business debt hibernation was right for your business, this was how it helped you manage your debts.

  • You set up an arrangement for your existing debts, eg paying your creditors only a percentage of what you owe them on time and delaying the rest.
  • You got up to a month of protection while you setting up the arrangement, meaning most creditors couldn’t enforce their debts, eg applying for your business to be liquidated.
  • If your creditors agreed, you got a further six months of protection.

You still needed to pay off your debts in full. Business debt hibernation helped manage your debts while you were protected but they didn’t go away altogether. And it was only for debts you already had. Any new debts would’ve had the terms and conditions your creditors set. Some debts weren’t covered by business debt hibernation, eg employee wages and debts to secured creditors with a general security agreement.

Business debt hibernation reduced the burden of existing debts, so you could stay solvent and start trading normally again. For example, you could have taken a couple of months to get back up to speed, and then pay back the remaining debt over the following quarter. It was an option to consider alongside borrowing money, or processes like creditor compromises or voluntary administration.

You could have organised business debt hibernation yourself, or received help from a lawyer or accountant. If you did it yourself, you needed to be aware of several legal requirements. For example, you needed to complete several formal declarations and statements. You also needed to organise a proposal and have your creditors agree with it.

Business debt hibernation and creditors

Consider other options

Business debt hibernation is no longer available, but other options are still in place to assist. You’ll need to understand what your cash flow looks like for the next few months. Forecasting your cash flow helps you understand your business health. You might discover you can squeeze by if you put some spending on hold, or boost your revenue with a new idea.

If you don’t already have a forecast, try the Cash flow forecaster tool.

Cash flow forecaster(external link)

Perhaps a loan will help. The Small business cash flow loan scheme provides government loans for small businesses, including sole traders and self-employed, to support their immediate cash flow needs. Applications are open until 31 December 2023 through Inland Revenue. Find out if you’re eligible and how to apply on the COVID-19: Financial support for businesses page.

COVID-19: Financial support for businesses

 

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