3 July 2020 Alexandra Beidas  -  Cara Hegarty Brexit - Capital Markets - Debt - Capital Markets - Equity - Corporate Governance - Covid-19 (Novel Coronavirus)

UK - CLBILS: Executive and senior management pay restrictions

The government’s expansion of its Coronavirus Large Business Interruption Loan Scheme in May includes new restrictions for borrowers and their group members, including on management pay. Click here for the Treasury announcement, and here for details of the CLBILS as originally launched in April. This note considers these new restrictions.

What is the CLBILS? 

The CLBILS is one of the government’s key business support measures, to help companies obtain the finance they need due to the impact of Covid-19. The government (operating through British Business Bank) guarantees 80% of eligible commercial loans borrowed by eligible UK-based businesses from accredited lenders. The maximum loan amount which can be borrowed was increased to £200m, but with some added restrictions on dividends, share buy backs and pay, for facilities exceeding £50m. 

What are the pay restrictions?

Until a facility is repaid in full, anyone in the borrower’s group may not award pay increases or cash bonuses to senior management. But these are permitted if: 

  • they were (in the case of a pay increase) declared, or (in the case of a cash bonus) agreed in writing, before the facility was entered into; or
  • (in the case of a pay increase) it is in keeping with similar payments made in the preceding 12 months, and does not have a material negative impact on the borrower’s ability to repay the facility.

The restrictions don’t apply to new members of senior management upon their joining the group after the date of the facility, but must apply to their subsequent cash bonuses or pay rises.

Who are “senior management”?

The restrictions apply to:

  • board members,
  • those within the Senior Managers Regime for financial regulation purposes;
  • other directors or employees with strategic or planning roles; and
  • employees whose activities are material to the group member’s overall performance.

What next?

Any business looking at participating in the CLBILS should consider carefully the implications for its senior management reward and plan ahead. For example, they should review relevant contractual documents and plan their communications to ensure they have flexibility to pay in non-cash. The precise ambit of the restrictions is not clear, and it will also be necessary to work out who is caught. Similar restrictions now also apply to corporates that wish to borrow money beyond 12 months under the Bank of England’s Covid Corporate Finance Facility.

If you have any questions or would like to discuss these issues further, please get in touch.