CORONA SOLVENCY ISSUES
March 19, 2020
Time to think outside the box, but not lose sight of the legal realities
Calling these times uncharted waters is starting to look like a serious understatement for practically every business in the UK and indeed worldwide. Revenues are falling off cliffs, employees are disappearing into isolation in escalating numbers, operational difficulties are compounding by the moment and the Government is throwing money at us like confetti.
What to do? How to react? Can your business survive? What are the responsibilities of owners and directors? A lot of companies are now facing more questions than they still have customers.
What are my options?
The most immediate priority is to wrap your head round the Government’s ‘Bazooka’ £350bn rescue package, or more precisely which parts apply to your business and how to access what you need. Details are still emerging, but one thing’s for sure: you need to think very carefully before accepting any help in the form of loans, however tempting it might be. Remember they will have to be repaid eventually. Will they be a future millstone that will only drag your business down later?
But whatever you do, be very careful about the swarm of consultants and other amoral scam merchants who will be swarming round this scheme, looking to exploit or cheat you. Stick to using trusted advisers to help.
If you do opt for a loan, don’t borrow any more than you really need. Maximise your working capital by collecting as much of the money you’re owed as quickly as you can. Minimise your outgoings, either by slashing expenditure altogether or by negotiating extra credit from suppliers or deferred payment terms from landlords and other service providers. They may not agree, but there’s no harm in asking the question. If you have any surplus assets like equipment or inventory, turn them into cash and don’t worry if you make a loss. Profits are not a key priority right now.
But you must keep in mind that how many other commercial reference goalposts are shifting right now, directors cannot continue to trade when they know or ought to conclude that insolvency is unavoidable. You can’t just struggle on in the hope that things might get better, worsening the eventual outcome for your creditors in the process. It’s called wrongful trading and it could end up with you picking up personal liability for creditors’ extra losses.
Negotiations through the storm
These extraordinary times call for some pretty advanced skills and sadly, they’re not ones most business people have. Negotiating payment standstills and managing an imploding business are extremely challenging. Understanding the legal niceties of insolvency is a highly specialised talent. There’s no shame in admitting you don’t know the rules of such dangerous games. This is no time for making things up on the hoof; you need to talk to experts and ask for their help or you could end up making a bad situation much worse.