On 15 January, the Supreme Court delivered its judgement on the appeals heard in the business interruption insurance test case and ruled that the named insurance companies must compensate for the loss in business sustained as a direct result of the COVID-19 pandemic.
“As we have recognised from the start of this case, tens of thousands of small firms and potentially hundreds of thousands of jobs are relying on this. We are grateful to the Supreme Court for delivering the judgment quickly. The speed with which it was reached reflects well on all parties.” Sheldon Mills, Executive Director, Consumers and Competition at the FCA.
This is a landmark victory for small businesses and means that insurers are expected to pay out something in the region of £1.8bn in claims related to loss of business due to the pandemic. However, it should be noted that the court ruling only applied specifically to the six insurance companies named in the appeal. As this is a test case then it is more than likely that other insurance companies will have to follow suit as it will stand as guidance for the rest, but business owners should contact their insurance companies and wait for them to confirm that the ruling has changed their position on compensation.
Indeed, it is still a long way to go for small businesses with the country still in a position of full lockdown. Now, more than ever, it is vital that business owners take the best course of action to either secure the future of their business or at least protect their assets.
The next steps
If you are a small business owner and are awarded a pay out from your insurance company then you are going to feel a huge sense of relief. However, what you do with the money at this point could be pivotal for the future. It is essential that you don’t misapply the funds and cause yourself further problems along the line. The key questions you should be asking at this stage are:
- Is there enough to make a full pay out to creditors whilst still being able to reopen after lockdown
- Would a company voluntary agreement (CVA) compromise COVID creditors with the insurance and allow you to move forward?
- Will you be able to pay staff once the furlough scheme is over?
- Is there enough to put together a recovery plan to adapt and secure your business for the future?
Now, more than ever is the time to evaluate your business and put together a recovery plan to encompass your vision for the future. The current lockdown along with a sizeable insurance pay out can provide a much-needed window of opportunity for small businesses. With the promise of better times ahead with the vaccination programme underway, it is vital that your business is ready to reopen to restore confidence in creditors. However, the world will not be the same as it was so careful planning and a willingness to adapt are both crucial.
At Mercer & Hole, we have adapted a one page business plan to help you shape your vision and to identify and manage risk. We can help you to bridge the gap following on from the devastating fall-out from the pandemic and the future of your company. It is a simple and effective way to consider risk, waste, and growth opportunities so to clarify the way forward in a time frame that suits you, your creditors and the people who work for you.
A small business is worth far more than the monetary value of its assets. It is part of the community supporting other small businesses, providing jobs, and promoting values. This ruling should mean that far more small businesses will be able to continue once the lockdown has ended provided business owners use this opportunity to take stock and plan for the future.
If you are a small business owner and you have been affected by this ruling, then please contact us for help and advice on how to move forward.