UK companies receive support to survive rising energy cost pressures, but is it enough?

Quick read

Since 2021, soaring wholesale energy costs have caused concern for businesses already battling a difficult economic climate with wider inflationary pressures, such as higher interest rates.

The government's mini-budget on 23 September 2022 cancelled the planned increase in the corporate tax rate (the proposed increase from 19% to 25%). This will assist those companies which are profit-making, but without support to reduce the cost base, this provides limited relief to others.

There is some good news, the department for Business, Energy and Industrial Strategy has announced that wholesale electricity and gas costs will be capped at a 50% discount on prices forecast for winter. The cap came into force on 1 October 2022 and will last six months. Even so, some companies will still be paying substantially more for their electricity and gas than they were a year ago and directors are having to make important decisions regarding the future of their businesses.

What steps should directors be taking?

Directors of companies facing financial difficulties should seek contingency planning advice at an early stage.
If there is no reasonable prospect that a company can avoid insolvent liquidation or administration, directors should take advice on commencing a formal insolvency process.
If there is a reasonable prospect that a company can avoid insolvent liquidation or administration, there are a range of options available to facilitate the restructuring of the business.
Regular board meetings should be held, detailed financial forecasts evaluated and records kept as evidence of the directors' considerations when complying with their duties to the company. The Supreme Court has recently held that where a company is insolvent, or bordering on insolvency, or where insolvent liquidation or administration is probable the directors must balance the shareholder and creditor interests by applying a 'sliding scale' giving greater priority to the interests of creditors as the financial difficulties increase (see our alert here).