The direct or indirect effect of corona measures varies from company to company. A number of sectors face a sharp decline in sales. Thanks to financial support and tax deferral, the government is accommodating these companies. On the other hand, there are companies that are doing well. Despite, or precisely because of corona. But they too have a challenge, which is to depress their bank balances.
In many companies that are doing well, we see a striking phenomenon. As their high bank balances are hit by negative interest rates, these companies are motivated to pay invoices as early as possible. The same is true for tax payments. Previously, sales tax and payroll taxes were not paid until a few days before the due date; now companies pay taxes as soon as the tax return information is known.
Restarting with a WHOA
The situation of these companies is at odds with that of companies hit hard by the corona measures. They are actually putting off their payment obligations. And with insufficient recovery, the question is whether they can pay their debts. Previously, companies with structurally insufficient viability had two choices: voluntarily cease operations or, of necessity, accept bankruptcy. Since the beginning of this year, the alternative of the WHOA (Homologation Private Agreement Act) has been added. The WHOA allows creditors to impose a forced composition without bankruptcy. They can then make a restart while being freed from many debts.
The first practical examples
Meanwhile, there are the first applications of the WHOA. It is interesting to see to what extent creditors have to relinquish their claims. In the ruling of Jurlights, a company in the events industry, the Tax Authority agreed to a payment of 21% of its claim against final discharge. The unsecured creditors (the suppliers) agreed to a distribution of 16% of their claims.
The Tax Administration's relatively low 21% rate is remarkable, given its strong position as a preferential creditor. This can be seen as an initial signal that the Tax Administration is acting sympathetically in applying the WHOA. The recent call by the AFM board chairman, that the Tax Administration should prepare to write off debts, is consistent with this. In this way, the detrimental effect of corona measures on individual companies is redistributed to society. Incidentally, this is no different in bankruptcy, on the understanding that then the beneficial effect of a restart is often omitted.
Active debtor policy
For healthy companies, it is advisable to implement an active accounts receivable policy in order to reduce the risk of bad debts. Credit insurers can be expected to be critical in setting and adjusting credit limits per company. For the sake of the desired coverage, it is important to observe these limits.
This is an article from Govers Signal edition May 2021. Curious about other articles from this Govers Signal, click here.