UK & Europe
Covid-19's significant impact on people’s health and wellbeing has had a massive knock-on effect on the UK and global economy.
On 6 January 2021, England’s third national lockdown legally came into force. The Chancellor, Rishi Sunak, has announced a further £4.6bn financial support package aimed at offering targeted assistance to struggling UK businesses. However, the British Chamber of Commerce has commented that this package will not be enough to save many firms.
The economic impact of the Covid pandemic
The UK has suffered significant economic harm from the impact of Covid and, more specifically, the lockdowns introduced to deal with the pandemic. It faces a challenging economic recovery ahead with the UK predicted to be among the last of the high-income economies to regain its pre-pandemic size due to rising unemployment, rising UK government debt, low levels of business investment and the effects of Brexit.  In November 2020, the UK entered a double-dip recession, as the effects of the UK’s first and second lockdowns took effect. The Office for National Statistics reported that UK GDP in Q3 2020 was 8.6% lower than in Q3 2019 and around twice as large as the cumulative drop in GDP in other G7 countries.
However, there is light at the end of the tunnel: the UK’s Covid-19 vaccination programme offers the prospect of a return to something like normal, which will hopefully encourage economic recovery and reduce the need for further lockdowns and stringent social restrictions.
The need for cash flow management and debt realisation
It is against this backdrop that companies which have weathered the Covid storm will seek to recover from the severe financial shock which they have had to face. Key to recovery will be managing cash flow – cash will be king once again, and management will come under pressure to realise debt which is sat on companies' books for unprecedented periods. Quite simply, if your suppliers are demanding payment "now that things are getting back to normal", then you will want your debtors to do likewise, otherwise borrowing will increase, which is expensive and potentially fatal to a business.
The question is, how much of that debt will turn out to be bad? And how many debtors will have the ability to pay but will resist demands to do so, perhaps arguing force majeure due to Covid, or relying on a failure of the creditors company to perform as contractually specified during lockdown – or simply refuse to pay? Chasing debt can be ineffective (if some bulk debt collection agencies are used) and/or can mean incurring excessive legal costs. Moreover, while some claims might be significant enough to be able to litigate cost-effectively, there might be a number of smaller claims for which the litigation costs would be disproportionate individually, but cumulatively amount to a significant sum.
The solution: the funded claims portfolio
So, how can companies identify bad debt and recover sums due from recalcitrant debtors without making their cash flow situation worse in the short term? Clyde & Co. has teamed up with third party funder, Litigation Capital Management, to develop a novel funded claims portfolio model. In the funded claims portfolio, we agree to pursue all of a client’s claims of a certain type/category on a “no-recovery-no-fee basis”. Using this model, the client only pays our fees if we make a recovery, and in most cases a portion of those fees is recoverable from the debtor in addition to the debt. Smaller debts are pursued along with the larger ones – there is no cherry-picking purely on the basis of size of debt. Clients can benefit from our extensive contentious legal experience and network of offices throughout the UK and across the globe, so that wherever the debtor is based, recovery can be made. Even if a claim is identified as being hopeless because investigations reveal that a debtor has no assets, this has value because it enables the debt to be written off expeditiously.
Cash flow management has never been as important as it will be when the UK economy starts its long and arduous recovery from the dual shocks of the Covid pandemic and Brexit. Our funded claims portfolio offering enables businesses to maximise cash inflows while minimising cash outflow via legal expenditure, and might provide a valuable weapon in a company's arsenal as it seeks a competitive advantage in the journey out of recession.