Gov't Extends Trade Credit Backstop Amid Pandemic

By Lucia Osborne-Crowley
Law360 is providing free access to its coronavirus coverage to make sure all members of the legal community have accurate information in this time of uncertainty and change. Use the form below to sign up for any of our weekly newsletters. Signing up for any of our section newsletters will opt you in to the weekly Coronavirus briefing.

Sign up for our Financial Services UK newsletter

You must correct or enter the following before you can sign up:

Select more newsletters to receive for free [+] Show less [-]

Thank You!



Law360, London (January 4, 2021, 12:55 PM GMT) -- The government has said it will give companies more time to get access to its £11 billion ($13.5 billion) state aid fund, which offers trade-credit insurance cover for businesses faced with clients that cannot pay for services amid the COVID-19 pandemic.

The Department for Business, Energy and Industrial Strategy said that its scheme to support the trade credit insurance market under the European Union's state aid rules, which had been slated to end on Dec. 31, will be extended to June 30.
The insurance covers companies that supply goods and services against the risk that customers will be unable to pay outstanding invoices.

The department said on Dec. 29 that the fund "has been extended by six months...and approved under relevant state aid rules." Participating insurers include American International Group U.K. Ltd., Zurich Insurance PLC and Atradius U.K., the business department said.

Atradius, a trade credit insurer and debt collector, said the extension is a positive step.

"Maintaining trade credit insurance cover for U.K. businesses is key to enabling trade and protecting supply chains," Stuart Ramsden, regional director at Atradius U.K., said. "Trade credit protection is also important for the U.K. economy and its ability to overcome the challenges arising from the pandemic."

The government announced the launch of the fund in June and backdated it to April. Business Secretary Alok Sharma said at the time that the guarantee "gives peace of mind to businesses, allowing them to continue to trade, and maintaining liquidity in supply chains."

The European Commission approved Britain's guarantee scheme in July. European Union rules allow the executive to sign off state aid measures implemented by member states to remedy a "serious disturbance to their economy."

The backstop means that the government effectively pays 90% of trade credit claims, with insurers picking up the tab for the remaining 10% of losses.

Investment bank UBS said in April that global losses from trade credit insurance could reach $16 billion, with government backstops limiting further losses. Banking giant Morgan Stanley has put the potential losses much higher, saying that global trade credit insurance losses could balloon to $46 billion over the next two years as a result of the pandemic.

--Additional reporting by Najiyya Budaly and Martin Croucher. Editing by Ed Harris.

For a reprint of this article, please contact reprints@law360.com.

Hello! I'm Law360's automated support bot.

How can I help you today?

For example, you can type:
  • I forgot my password
  • I took a free trial but didn't get a verification email
  • How do I sign up for a newsletter?
Beta
Ask a question!