The Importance of Financial Support and the Necessity of Due Diligence Nick Keeling

Local authorities are at the forefront of providing financial support to households and businesses in their regions, whether as the instrument of central government or on a direct unilateral basis. By necessity, the central government support mechanisms have been broad brush, delivering assistance to the widest range of businesses as quickly as possible. However, as many local authorities are finding out, these schemes either do not cover all areas or do not deliver enough support, entailing individual authorities to field requests for financial assistance.

Most local authorities will be minded to provide as much support as possible, but fully in the knowledge, that after 10 years of austerity and facing an uncertain outlook, their financial position may limit the amount that can be provided. Scarce resources mean that difficult decisions have to be taken to ensure that waste, such as providing support to unviable businesses, is avoided.

For companies providing local authority services, such as leisure contractors, the rules around financial support will normally be incorporated within service contracts. This is normally in response to Change in Law or other related clauses, which prompt a course of action ultimately resulting in financial assistance.  Many of these particular businesses will have been the hardest hit, resulting in complete or near complete loss of income, while contracted requirements require a certain level of maintenance, for instance, to be carried out.

Assuming the service was procured properly, there are no state aid issues around providing support within these terms, although the actual level of financial aid is still the result of a negotiation based on information provided by the contractor.

For other businesses, financial assistance is not as easily defined as looking at the clauses in a service contract. However, some of these companies may provide important or desirable services to residents and other businesses, or be significant employers, within the council boundaries. Others may be less well known, but all will be seeking to save their livelihoods.

Providing financial assistance is subject to state aid restrictions, but these have been loosened by the European Commission due to the circumstances. There remain numerous rules, but the starting point is that the business was financially viable prior to coronavirus, or in the EC parlance, not an undertaking in difficulty.

Whichever way financial support is being delivered, the Council will need to know that it is supporting a return to constructive economic activity and maintaining jobs and incomes, not just delaying an already inevitable demise. Carrying out thorough due diligence is a cornerstone of the decision-making process both to meet state aid rules and ensure scarce funds are not poorly allocated.

Arlingclose has a successful track record of performing due diligence on a variety of commercial enterprises, from housing associations to retailers to property developers. Projects can be carried out efficiently and in as much detail as required, whether a broad-brush desktop review of the financial statements to more in-depth reports that include interviews with the business in question.

Please contact Arlingclose at for more information.