Shearman & Sterling LLP | FinReg | UK Financial Services Sector Plan for Supporting COVID-19 Recovery
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  • UK Financial Services Sector Plan for Supporting COVID-19 Recovery

    TheCityUK, the U.K.'s industry body for financial and related professional services, has published a report entitled "Supporting UK Economic Recovery: Recapitalising Businesses Post COVID-19". The report sets out options for how large debt burdens incurred by small and medium-sized businesses as a result of COVID-19 can be managed. The report was prepared in consultation with financial and professional services firms, HM Treasury, the Bank of England and the Financial Conduct Authority.

    Many SMEs have participated in the U.K. government's various lending schemes (including the Coronavirus Business Interruption Loan Scheme and the Bounce Back Loan Scheme). This has generated significant volumes of government-guaranteed debt, which SMEs may struggle to repay if the U.K. economy fails to rally in the coming months. SMEs also face difficulties in the coming months from the dip in economic activity resulting from measures imposed to tackle COVID-19.

    TheCityUK's report proposes a series of measures to avoid significant cost to the U.K. government in the event of loan defaults while preserving SMEs. The proposed options include:
    • The U.K. Recovery Corporation, a new government-backed entity that would administer the conversion of SME loans into new products that they could service more manageably, while providing a vehicle for the private sector to invest in over time;
    • A series of debt conversion options, including a 'Business Repayment Plan' which would convert loans into means-tested tax liabilities or 'Business Recovery Capital' which would convert loans into subordinated debt; and
    • Potential forbearance options that lenders could use to meet the anticipated increase in repayment difficulties.

    The report sets out a four-phase approach to the implementation of its proposals, but acknowledges the U.K. government will first need to address key policy considerations.

    View TheCityUK's report.

    View details of the U.K. government's Bounce Back Loan Scheme.

    View details of the U.K. government's Coronavirus Business Interruption Loan Scheme.

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