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Where are we now with Restructuring Plans?

2024 started off with a hugely significant development for the emerging practice and use of Part 26A Restructuring Plans (RPs), with the Court of Appeal judgment in the case of Re AGPS Bondco plc (the Adler case).

The January ruling provided higher court authority on a number of practical and legal matters, clarifying the position for businesses and their advisers who are considering, pursuing or challenging RPs.

This article seeks to summarise some of the developments we have seen with RP case law post-Adler, highlight what we’ve learnt and areas where we may see further iteration of this important turnaround tool – both in case law and market practice.

Post-Adler adjustments

The first sanction rulings post-Adler were for two RPs, which had been put together prior to the judgment, so we saw some tweaking and adjustments to fit within the guidelines now set out by the Court of Appeal.

These were for CB&I UK Ltd (part of the McDermott Group, a large, multinational engineering and construction company) and Project Lietzenburger Straße Holdco S.À.R.L (part of the Aggregate group, a German real estate company).

Consideration of “out of the money” creditors

Earlier case law (e.g. Re Prezzo Investco Limited) had seen “out of the money” (OOTM) creditors – those unsecured creditors who would not receive any return in an insolvency situation – not offered anything as part of Plans and “crammed down” given that ultimately under the plan they would be “no worse off” and indeed likely better off than the relevant alternative (some form of insolvency event). Albeit obiter (meaning not forming part of the main judgment and not providing a binding precedent) Lord Snowden indicated in Adler that – in line with case law for Part 26 schemes of arrangement – in order for an RP to represent a “compromise or arrangement” and therefore be jurisdictionally valid, there must be some consideration (compensation) provided to the OOTM creditors, rather than simply the extinguishment of their rights. Adler also however indicated that such a payment might only be a “modest amount”.

In the first post-Adler ruling, in February, the level that had been offered to the dissenting creditor (Reficar) in the CB&I UK plan – a small fraction of the total debt – was considered sufficient to meet the requirement of being a compromise or arrangement – and the judge noted that it was “much greater” than Reficar’s share in a liquidation.

For the Aggregate plan, the company had offered no consideration to the OOTM creditors (the Subordinated Creditors).  Therefore, in order to comply with the requirements following Adler, despite also arguing that this was non-binding – which in itself was given short shrift by Mr Justice Richards, the company amended the RP to offer a small amount to these creditors. The judge considered that due to the previous lack of consideration, there had been no jurisdiction at the convening hearing. He therefore turned the sanction hearing in March into a convening hearing, so that creditors would be able to vote on the new plan; then using section 901C(4) he excluded all except those with a “genuine economic interest” in the plan (the Senior Creditors who had overwhelmingly supported the original RP) from voting. The Amended Plan was duly voted for and then sanctioned at a new hearing scheduled just three days after what would have been the original sanction hearing.

Leasehold-heavy RPs

Following these large and highly contested RPs, the next round of sanction hearings came in the summer.   These plans, for Tasty Plc– the owners of casual dining chains Dim T and Wildwood, the retail brand Superdry and bar and nightclub chain Revolution Bars focused largely – understandably given their real estate heavy sectors – on dealing with lease and related liabilities. This included exits, either immediately or at a future date, of unperforming sites or reduced rates paid to both landlord and local ratings authorities.

A further RP along these lines was pursued by Cineworld cinemas in autumn, sanctioned at the start of October, with garden centre chain Dobbies issuing its own RP in the same week.

The focus of these plans indicates the advantages of RPs in being able to right-size a company’s leasehold footprint whilst simultaneously addressing other aspects of the business, such as securing new money and strategic planning. These plans have been used for businesses in both the smaller mid-market, with Tasty plc reporting a turnover of just under £50 million for 2023, to larger businesses:  an over £600 million turnover for Superdry in 2023 and Cineworld as a global cinema chain.

Novel approaches to RPs

In between leasehold-focused plans, there was a novel RP over the summer, with Consort Healthcare (Tameside) plc, a private company providing services to an NHS Trust under a private finance arrangement, seeking to use an RP to compromise an arbitration award that had been made in favour of the NHS Trust. The outlined plan also seeks to impact future liabilities due to the Trust and includes certain operational aspects. The company put forward essentially two proposed plans (the “Sustainability Option Restructuring Plan” and the “Settlement Option Restructuring Plan”) with the proposal that both creditors and the court would consider both options, but only one would be sanctioned.

In response, the NHS Trust made an application for security for costs to be provided by Consort, highlighting the risk to the Trust in the difficulty of it being able to recover its costs of opposing the RP should it be sanctioned. The application was accepted by the judge, though granting only 50% of the costs sought. The judge did however in his judgment on the application highlight the particular aspects of the Consort RP that meant it could be deemed as akin to a continuation of adversarial litigation between the Trust and Consort, rendering security for costs more appropriate. However, there are certain other RPs that have sought to deal with liabilities including arbitration awards so it raised a question of whether this will be considered by more creditors in future. Following the security for costs application, the company announced it could not meet this costs order and that the plan would therefore be stayed.

Further international Restructuring Plans

Bringing us at the time of writing up to date with issued RPs, the most recent plan filed is that of Ambatovy Minerals Société Anonyme, two mining subsidiaries headquartered in both Madagascar and the Netherlands of the ultimately Japanese Sumitomo Corporation. The company in its filing notice indicated that the plan would be used to address operational improvements, including issues with machinery assets. Another international company, Chinese-based Sino-Ocean Group Holding is also reportedly considering using an RP in parallel with a Hong Kong process.

Conclusions and where next

We can see a developing twin track approach in the types of businesses seeking to use Restructuring Plans for company rescue post-Adler, with a number of complex and multi-jurisdictional companies choosing to bring their restructuring plans to the UK – often also involving cross-jurisdictional or overlapping plans. This reflects the attractiveness of both RPs as a tool and the international reputation of the UK legal system and practitioners. These plans usually involve complex and multifaceted restructurings, and can see opposing expert evidence, disputed valuations and more extensive disclosure and sanction hearings, including cross-examination of witnesses.  Post-Adler, we can see dissenting creditors relying on the comments in Adler, which stressed the importance of sufficient timeframes and disclosure for all creditors in their responses to RPs. For instance, a disclosure application by one of the impacted landlords in the Superdry RP, and the opposing arguments put forward by dissenting creditors in McDermott and Aggregate.

In light of some of these developments, some commentary has discussed whether RPs are coming to resemble more usual adversarial litigation. It may be the case that – particularly with the large and complex RPs – as RPs bed in and dissenting creditors become more confident in raising challenges, that we may see an increase in creditor applications surrounding these types of RPs  However, we can see following Adler the greater clarity around how the court will approach its discretion and what it will take into account to sanction an RP, particularly when asked to exercise cross-class cram down.  This also means some coalescing of areas of challenge, as well as a focus on outstanding areas not yet addressed fully in case law precedent.

This article is by no means a comprehensive outline of areas of focus or potential avenues for challenge. First, disputes are highlighting questions of fairness and whether there is a “better plan” possible, i.e. whether the value generated by the RP (“the restructuring surplus”) has been fairly distributed between different classes of creditors. This means more extensive thinking on the part of businesses and their advisors about whether they can improve their offers to creditors, even those who are out of the money, as opposed to just beating what they are considered likely to receive in the relative alternative.

We can see this with more iterative RPs and negotiations during the course of recent RPs. For instance, with the amendment of the Tasty RP post-convening hearing to provide an additional payment to all non-secured creditor classes, and the negotiations between the company and Reficar prior to and continuing alongside the sanction hearing for McDermott.  This can also be seen in the conclusion of consensual negotiations between certain landlords and the company in both Superdry and Cineworld cases, and amendments in relation to strip out provisions in the Cineworld RP.

This approach is also reflected in increasing discussions between businesses considering RPs and creditors outside of an RP, as in the separate Time To Pay agreement reached with HMRC outside the Tasty RP, and separate agreements with Aviva and M&G in relation to particular leases outside the Cineworld plan. We can see increasing sophistication from creditors looking to challenge RPs, but this comes alongside realistic assessments of their relative positions and willingness to reach agreement where possible. Particularly for smaller and mid-market RPs, with less complex debt structures, post-Adler, there is now an evolved framework for RPs to work within, providing greater certainty for businesses that if they comply with the requirements set out in Adler they have a good chance of receiving court approval, as well as a greater steer for creditors looking at how to respond to such plans.

On creditor applications, the court has been keen to stress the fact-specific nature of some of these. For instance, given the distinctive background and nature of the plan for Consort Healthcare, the (partial) success of the security for costs application in this case looks unlikely to be usual practice for other RPs.  In the recent Cineworld judgment, two landlords (UKCP and the Crown Estate) applied for injunctions removing their leases from inclusion in the RP on the basis that they had previously concluded renegotiations of particular leases and surrounding these negotiations there were agreements in letters from Cineworld that they would not seek further compromises of the leases in the event of a restructuring plan. The court did not accept this argument, noting that following Adler, where the relevant alternative was an insolvency process, the pari passu principle is the starting point and that departure from this principle in treating certain creditors or classes differently to others requires proper justification, in terms of “the preferential treatment or exclusion” being “likely to facilitate or promote the plan (by e.g. enabling the company to continue in business”. The judge here also reiterated the point made in Consort Healthcare that “each case turns on its facts”.  It is worth noting that UKCP has been granted permission to appeal.

Other applications themselves demonstrate parties’ willingness to seek to narrow the issues taken before the court – as discussed in Adler – with for instance the company and applicant landlord in Superdry agreeing the disclosure request as far as possible and leaving only certain disputed documents for the judge to decide, as was noted approvingly in his ruling. Conversely, last minute creditors applications such as those made in the Cineworld case risk – without good reason for such delays – judicial rebuke as to why points have not been raised earlier i.e. at the convening hearing.

Further potential areas to be clarified could be assessments of where the court may draw the line in accepting certain technical mechanisms by which plan companies are constituted (often in order to demonstrate sufficient connection to England and Wales, or to neatly package liabilities), such as deed poll mechanisms, issuer substitutions and so on. These have so far been accepted by the court but have caused some disquiet amongst certain creditors, and it could be that these become a stronger focus of challenge depending on the nature of future RPs. We may see new sectors seeking to utilise RPs, for instance further PFI contractors or the rumoured consideration of a Restructuring Plan by Thames Water, which may further clarify the courts’ position on how certain public interest creditors are treated.

In the meantime, we can see steady numbers of businesses across sectors, and of sizes large and relatively smaller, continuing to take advantage of this powerful company rescue tool to adjust their financial position (and often operational issues alongside) and seek a return to growth. It is also worth noting that the overall purpose of RPs supports the more collective “interest of the creditors generally in eliminating or mitigating the financial difficulties which are or may be affecting its ability to carry on business as a going concern” (Cineworld judgment, para. 129). In the longer term the ultimate goal is to support viable businesses and therefore creditors and the economy more generally as the Restructuring Plan comes of age.

The IFT Quarterly Update Q2 2024: steadily increasing turnaround activity as businesses deplete working capital

Our Q2 2024 update on turnaround and restructuring activity across sectors shows a picture of steadily increasing activity, with half of IFT partners surveyed seeing an increase in activity, and the rest about the same level of activity. The busiest sectors in terms of turnaround and restructuring continued to be real estate and construction. The depletion of working capital was the most commonly cited factor driving business distress, whilst the pressures of inflation and the costs of servicing debt remained substantial. 50% of IFT partners surveyed also highlighted the withdrawal of shareholder support/funding as impacting businesses over the last quarter.

The quarterly data from FRP Advisory showed another slight increase in the number of businesses experiencing distress compared to Q1 2024.  Construction featured as the sector with the highest number of insolvencies in Q2 2024 (as it had in Q1), as well as in the top three sectors experiencing the highest levels of distress.

You can read the full update here.

IFT appoints new Chair

The Institute for Turnaround is delighted to announce the election of the new Chair of its Board of Directors, Claire Burden. She will take up her position at The IFT AGM in September 2024.

Claire will bring extensive experience as an independent IFT member to the role, having spent ten years in interim company advisory and director roles, with a particular focus on financial turnaround. Claire has been a statutory director for nearly 50 entities and brings experience as both an independent and corporate adviser. Most recently she joined Evelyn Partners heading up their consultancy practice. She became a Fellow of The IFT in 2024.

Claire said: “I am thrilled to have been elected to the position of Chair of The IFT, having been an accredited member since 2013 and a Board Director since 2022. I look forward to working closely with all members of The IFT to continue to develop its membership and profile at a really exciting time.”

Milly Camley, CEO of The IFT, said: “Claire has been an active member and Director of The IFT, having served on our West & Wales Committee and as Chair of our membership committee. We are delighted that she will bring her extensive experience as an independent and corporate adviser to the role of Chair. We’d also like to thank Andy Leeser for his experienced leadership and contribution to The IFT during his time as Chair”.

Andy Leeser is stepping down as Chair and Board Director at the end of his three-year term, having overseen a successful re-branding process, extension of The IFT’s thought leadership and stakeholder engagement activity, as well as significant development in relation to The IFT’s next generation programme.

Andy said: “I have been delighted to see the development of the profile and importance of The IFT over the last three years. In the future I believe our independent and corporate members will be working together ever more closely to further raise the profile of our profession. I think that Claire has exactly the right balance of skills and experience to deliver this and I wish her and Milly every good fortune. They have my full support as a member and Fellow of the Institute.” 

IFT and Macfarlanes publish update on the business funding landscape

Today The Institute for Turnaround (The IFT) and Macfarlanes published a report outlining recent trends in the business funding landscape in the UK and looking forward to what we might expect to see as we move through the remainder of 2024.

The report includes a discussion of the outlook for private equity sponsors and corporate borrowers, private credit funds, real estate debt and how private credit fund lenders are dealing with corporate borrowers in financial distress.  It highlights the improving outlook in 2024 compared to 2023, with the beginnings of a resettling of inflation and the expectation of interest rate cuts, expected to lead to an increase in UK M&A activity.

For private equity sponsors and corporate borrowers, there is very significant liquidity waiting to be deployed, a growing number of companies waiting to be exited as part of the typical investment cycle, and cheaper debt as well as demand from investors to see returns on capital.

Moving through 2024, private credit funds will also be looking to provide buy-out financing and satisfy a strong appetite for deployment, as well as exploring new strategies such as net asset value (NAV) basis lending and specific asset class strategies. The increased presence of private credit funds in the real estate debt space is likely to be bolstered by the recent growth of operational real estate.

Nevertheless, across the various types of funding, caution and discernment in relation to deals and sales processes is likely as funders take a prudent approach in light of the macroeconomic pressures of recent years, as well as continued geopolitical instability and scrutiny of funds. For businesses experiencing financial distress private credit funds may increasingly look for the provision of additional equity or where this is not forthcoming, may begin to ramp up the pressure, either for a business to seek more external capital or make a sale.

Over 2024-25 we will see a significant number of financing deals coming to maturity, in particular as a result of sale processes as well as increased M&A volumes. Funders will be looking for overdue returns, whilst remaining conscious of the importance of good relationships and flexible approaches, especially for businesses seeing difficulties and in an increasingly competitive market.

This report forms part of a programme of work that The IFT is carrying out on the funding environment, including our Funding Conference held earlier this year in association with Macfarlanes. Later in the year we will expand on the themes covered in the report with an overview analysis of the business funding landscape based on interviews with various lenders and funds, covering how approaches and considerations can differ across funding types.

We’d like to thank Macfarlanes for working with us on this report and providing their expert insight in this area.

You can read the report here.

PART 26A RESTRUCTURING PLANS DRIVING CONSENSUAL RESTRUCTURING, RESEARCH FINDS

Research from The Institute for Turnaround (The IFT) found that Part 26A Restructuring Plans were being considered in increasing numbers of cases and were often successful in encouraging consensual agreement.

 Further development of case law and market practice would help more SME firms take advantage of this tool.

 Part 26A Restructuring Plans, introduced under the Corporate Insolvency and Governance Act 2020 represent a powerful company-side, non-insolvency tool for businesses that may be experiencing financial distress due to successive global and economic pressures.

The IFT is strongly supportive of the potential for Restructuring Plans to help drive improved future financial performance to avoid unnecessary insolvencies.

In the first quarter of 2024 The IFT conducted a series of regional roundtable meetings in bringing together IFT independent members, lenders, alternative lenders, investors, lawyers, advisers and statutory and other key stakeholders.  The roundtables investigated a mixture of experiences with and views on Restructuring Plans and were supplemented with a follow-up survey to participants.

Survey respondents indicated gathering pace in the number of companies considering or proposing a Restructuring Plan to achieve the survival of a business:  51% in the past 6 months compared to 24% in the past 12 months and 12% in the past 18 months. These had been in a wide range of sectors, with the top three being retail, manufacturing, and casual dining.

Restructuring Plans had also been considered for companies of a range of sizes, with 22% of respondents considering for companies with a turnover of less than £25 million, whilst 52% had considered for companies with turnovers between £25 and £100 million or £100 million plus turnover.

41% of respondents had discussed the possibility of applying for sanction of a Restructuring Plan in negotiations for a restructuring of a business. Of those that had specifically discussed the possibility of a Restructuring Plan as part of negotiations, 70% indicated that this had helped achieve a consensual agreement. This demonstrates positive outcomes for both a company and its creditors and stakeholders. A clear message from the roundtables was also that the value that can be preserved and generated using a Restructuring Plan was substantial, as well as potentially speeding up the delivery of a turnaround.

The IFT is committed to engaging with market and other stakeholders to encourage solutions to such practical issues, recognising that the recent Court of Appeal judgment in the case of Adler helps provide clear guidelines for businesses of all sizes in relation to Restructuring Plans.

Milly Camley, CEO of The IFT said, “Part 26A Restructuring Plans are now coming of age with the Adler judgment which provides helpful guidance for businesses and stakeholders. The IFT is working with a range of stakeholders to seek to encourage engagement and development of market practice so that the full range of businesses can benefit and thrive. The roundtable discussions also highlighted the important role that IFT members can play in supporting the use of Restructuring Plans and helping to engage with stakeholders”.

You can read the report here and the survey findings here.

 

The IFT Quarterly Update: continued strong demand for turnaround support as businesses struggle with debt costs

The IFT’s quarterly update looking at turnaround and restructuring activity across sectors shows continued demand for turnaround support at the start of 2024, with 50% of The IFT’s partner firms surveyed seeing an increase in activity in Q1 2024, with the rest seeing about the same level of activity as the end of 2023.  The busiest sectors for turnaround and restructuring activity in the quarter were real estate and construction. The costs of servicing debt was the most common reason IFT partners saw for businesses experiencing distress, overtaking inflationary pressures which had been the most common factor at the end of 2023.

According to data from FRP Advisory, whilst Quarter 1 2024 saw a lower level of insolvencies than the previous quarter, there was a 2.1% increase in the number of businesses experiencing distress compared to Q4 2023. This may indicate businesses increasingly struggling with levels of debt and costs pressures after a number of difficult years, with often a need for turnaround support to help address these issues and maximise improvement.

As we move through 2024 we will have a greater sense of the degree to which businesses are able to utilise such support and avoid insolvency.

The full update can be found here: Quarterly Review Q1 2024 FINAL

With thanks to FRP Advisory and our partners who contributed to this update.

Future Proof : IFT study of younger turnaround professionals suggests they are more collaborative and solution focused

New report from The Institute for Turnaround and t-Three/Kiddy & Partners highlights key differences between younger turnaround professionals and a broader cohort of professionals 

The skills of turnaround professionals in providing immediate viability and confidence to businesses and stakeholders in those businesses, and in the transformation and adaptation of companies to new or unexpected challenges are an asset to UK plc. The recent economic backdrop has highlighted the value of turnaround in a difficult economic climate, with our latest annual Societal Impact Report highlighting that IFT accredited members saved in excess of 55,000 jobs and £2.6bn in shareholder value in the year 2022-23. When we factor in the work of our partners the number of jobs saved rises to just shy of 150,000.

Turnaround is therefore an important business discipline – a profession of professions, which will continue to be crucial for the success of UK plc. In the longer term, drivers of economic and social change – technology, trade, the geopolitical context- mean that turnaround professionals will need to support businesses to adapt and transform to the evolving landscape.

The Institute for Turnaround and t-Three/Kiddy & Partners have undertaken what we believe is the first survey looking at the characteristics and traits of younger turnaround professionals. According to the research, younger turnaround professionals demonstrate some significant differences when compared to a general population of working people.

The report, Future Proof: The Traits and Attributes of Young Turnaround Professionals, surveyed turnaround professionals from fields such as banking, law and accountancy. They completed Facet5, a globally recognized Five Factor trait personality questionnaire accredited by the British Psychological Society and designed specifically for the workplace.

The responses from participants indicated three key areas where turnaround professionals’ traits and behaviours can be distinguished from those of general employees:

  • Turnaround professionals are more likely to demonstrate behaviour which seeks to resolve differences of view and disagreement in a calm, non-argumentative way to achieve a consensual position.
  • They also show a higher tendency to share their processes and approach, favouring working collaboratively towards a successful outcome, taking into account others’ input and feedback along the way.
  • Finally, those in the participant group show a greater tendency overall towards working to high standards and hence will display a strong sense of duty, responsibility and conscientiousness.

The research highlights the distinctive traits displayed by younger turnaround professionals and also indicates some possible areas of professional development such as stakeholder management skills and strategies for dealing with confrontation. It provides a useful starting point for further research about this important profession and what skills and competencies will be required to ensure future delivery of successful turnarounds.

You can read the full report here.

The IFT’s first Quarterly Update: increasing demand for turnaround services in the face of inflationary and costs pressures

As official figures show that the UK economy entered a technical recession in the last quarter of 2023, today we publish The IFT’s first quarterly update, covering activity in the turnaround sector as well as distress and insolvency statistics for Quarter 4 2023.

This update supplements our annual Societal Impact report which surveys our independent members and corporate partner firms. Last year’s report estimated that accredited turnaround professionals saved an estimated 55,000 jobs in 2022-23, helping UK companies to add £2.6 billion in shareholder value.

The vast majority of surveyed firms specialising in turnaround saw an increase in activity in the last quarter, with construction, real estate and financial services the busiest sectors seeking turnaround expertise.

Inflationary pressures and the costs of servicing debt were the top two reasons turnaround professionals saw underlying business distress, highlighting the difficult economic context for companies seeking support.

With thanks to FRP Advisory and our partners who contributed to this update. These updates will be released on a quarterly basis to provide a snapshot of trends in the turnaround sector and business distress.

IFT Quarterly Update Q4 2023 FINAL

Institute for Turnaround welcomes publication of HMRC’s approach to Restructuring Plans

On 1 November 2023, HMRC published some new guidance outlining the approach they will take to restructuring proposals provided by companies, such as restructuring plans under Part 26A of the Companies Act 2006. 

The guidance is short and without frills but does offer some key points for companies to ensure they consider when looking to restructure debts given HMRC’s status as a key creditor. The guidance also reflects some of the key lessons that have developed from Part 26A case law to date where HMRC engagement has been crucial to the success or failure of plans.

Firstly, HMRC is clear that they will only support restructuring proposals where they believe there is a “realistic chance of succeeding” (emphasis added).  They outline that companies must be prepared to explain why they consider the plan to be realistic and in particular that HMRC will critically examine projections of future income and expenditure, comparing it to previous history and assurance. All tax returns must be filed and HMRC need to be satisfied that the company will be able to pay future debts to them as they are due.

The guidance therefore makes clear that companies and their advisers need to be mindful of previous dealings and filings with HMRC and be prepared to explain any previous issues with taxes, as well as to defend future assumptions and calculations. Robust figures and independent evidence are crucial.

Another consideration of HMRC highlighted is the approach taken to payments of other creditors ahead of HMRC and whether this is justified, as well as looking at whether the company has “dealt fairly with payments to creditors during the period” and if part of a group, has “reasonably apportioned debt or risk within the group”.

Ultimately, the key point to take from this guidance, as indeed from the case law it reflects, is that HMRC support for restructuring is possible, but early and open engagement with HMRC is essential.

What does the Autumn Statement offer struggling businesses?

What does the Autumn Statement offer struggling businesses?

As a major policy moment before the next UK general election, this Autumn Statement has been hotly anticipated. There was much speculation about possible tax cuts to provide relief to businesses who have been struggling with the impacts of inflation, supply chain and labour issues.

Hunt predicted that the 110 growth measures he included in the statement would increase business investment by £20 billion per year in a decade and he emphasised that the statement was an “Autumn Statement for Growth”. This was against  figures from the Office for Budget Responsibility where projected growth is now expected to be slower than expected, and inflation is estimated not to fall to its 2% target level until the first half of 2025. Whilst the economy defied predictions with an estimated growth of 0.6% in 2023, the OBR’s estimate of the medium-term potential growth rate of the economy has been revised down to 1.6% from their previous estimate of 1.8%.

The Chancellor’s measures for businesses included the following:

Business Tax Measures 

  • “Full expensing” for businesses to be made permanent.
  • 75% business rates discount for hospitality, retail and leisure extended for another year to 2024/2025.
  • A freeze on all alcohol duty until 1 August 2024.
  • Creating a new simplified Research & Development (R&D) tax relief combining the existing R&D expenditure credit and SME schemes; reducing the rate that loss-making companies are taxed within the merge scheme from 25% to 19% and lowering the threshold for additional support for R&D-intensive lossmaking SMEs to 30%.
  • The small business rates multiplier will be frozen for a further year, though the standard business rates multiplier will rise by inflation.
  • Abolition of Class 2 National Insurance contributions for the self-employed altogether, and Class 4 National Insurance contributions reduced by 1% from 9% from April 2024.

 

Apprenticeships and Skills

  • An additional £50 million to boost numbers of apprenticeships in key growth sectors.

 

Business investment and other measures

  • Reforms to business planning applications for faster processing.
  • Foreign Direct Investment reforms, including a concierge service for the largest investors.
  • Mansion House pension reforms to unlock an extra £75 billion of investment for high growth forms by 2030.
  • Extension of the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) schemes until 2035 to support start-up companies.
  • A new Growth Fund within the British Business Bank for investing in high growth companies.
  • An upcoming review of the Value for Money Framework by the Financial Conduct Authority
  • A consultation on the Pension Protection Fund acting as a consolidator for smaller private defined benefit pensions schemes.
  • Further capital market reforms to attract investment.

 

Sector specific measures

  • Improving electricity grid access for clean energy companies.
  • £500 million over the next two years to help develop Artificial Intelligence industries.
  • For the advanced manufacturing and green energy sectors he announced that the government will be publishing long-term plans and £4.5 billion of support over the five years to 2030 to attract investment into strategic manufacturing centres.

 

Late payments  

  • In terms of payments dates, the Procurement Act has 30-day payment terms throughout the subcontract supply chain for public sector contracts. From April 2024, any company bidding for large government contracts should demonstrate they pay their own invoices within an average of 55 days which will reduce progressively to 30 days.

 

Levelling up

  • Investment zones and freeports – extending financial incentives for investment zones, and tax reliefs for Freeports from 5 years to 10 years.
  • A £150 million investment opportunity fund, new investment zone in West Yorkshire, 3 further investment zones in the West Midlands, East Midlands and Greater Manchester, and a second investment zone in Wales.

 

Impact

The Chancellor stated that the 110 growth measures he included in the statement would increase business investment by up to £20 billion per year and described the extension to full expensing as “the largest business tax cut in modern British history” and the “biggest ever boost for business investment in modern times”.

A number of the measures will be welcome for struggling businesses, especially smaller businesses, such as the plans for tackling late payments where businesses are struggling with cashflow issues, as well as the freezing of the small business multiplier for an additional year. There were also sector specific measures such as the extension of the 75% business rates discount for hospitality, retail and leisure for another year, and the freezing of all alcohol duty until 1 August 2024. This will be good news for these sectors, where businesses are particularly struggling with increasing costs and the impact of the cost-of-living crisis on demand.

The full expensing change was broadly welcomed by businesses – though it will benefit more research-intensive industries rather than service sectors – and it was also noted that by the Federation of Small Businesses that some of the major concerns of SME businesses were addressed, such as late payments and small business rates. Other measures supporting investment have been welcomed by organisations such as the British Venture Capital Association.

However, larger retailers and other hospitality businesses will still have to face an increase in the standard business rates multiplier by the September 2023 CPI rate of 6.7%. The OBR analysis confirmed that though the tax cuts in the Autumn Statement reduce the UK tax burden by 0.7% of GDP, the tax burden continues to rise and will reach a post-war high of nearly 38% of GDP by 2028/29. Increases to the National Living Wage also represent additional costs for businesses. In addition, organisations like the Institute of Directors noted that there was a lack of comprehensive measures for tackling skills shortages that also impact business prospects.

Ultimately, whilst welcoming some of the measures, businesses will be looking at the reduced growth figures – with a rate of 0.7% now predicted for 2024 – as well as the lagging inflation and interest rates with trepidation and steeling themselves for continued challenging times.