The ongoing impact of COVID-19 is leaving many UK businesses is financial distress, facing one challenge after another.

If your business is feeling the pinch, your customers are disappearing and yet you still have overheads to pay what can you do?

• Review the business’s financial position regularly.
• Manage your cash flow as effectively as possible, identify your overheads and look at which payments are essential i.e. payments to suppliers and payroll – consider furloughing employees on the CJRS.  Identify any payments which could be delayed to preserve cash.
• Ask your customers to pay outstanding invoices or consider a payment plan.
• Take advantage of HMRC’s deferral of tax payments and business rates.
• Make sure you have a comprehensive business plan which includes a trade out option.
• Look at available grants, the job retention scheme, discuss CBIL’s funding with your bank and, if you’re a small business consider applying for a Bounce Back Loan of up to £50,000 which launches on May 4^th.

If your difficulties are largely due to an insolvent debtor there are a number of things which you need to consider:

• What are your terms with that debtor and do you have any retention of title provisions which you can rely on?
• Do you have any security for your debt which you can call in?  This could include personal guarantees.
• What insolvency process is being proposed for the debtor if any? Not all of these are the same and the consequences for you could be different. This is true particularly for landlords with an insolvent tenant.

If your business is in decline and facing possible insolvency you need to assess the facts quickly and understand the options available to you.   This will include an analysis of the assets and liabilities of the business and whether there is a viable entity which can be saved via a restructuring route.

• Consider what is in the best interests of the company and, where appropriate, its creditors and keep records of decisions made.
• Be responsible with further credit and the long term strategy for repayment.
• Create a plan to highlight vulnerable areas of the business and how you will deal with them.

Understanding your duties as a director.

If your company is facing formal insolvency your duties as a director can alter and the consequences of not understanding this can be significant.  If you breach your duties a claim can be made against you personally as a director for the loss suffered by the company as a result of the breach.

Wrongful trading.

The government has announced there will a temporary suspension of wrongful trading provisions.  Initially this will be for 3 months but could be longer.  Wrongful trading concerns directors continuing to trade a company at a time when they knew, or ought to have known, that formal insolvency was unavoidable.  They can be made personally liable for the losses in that period. Directors need to be aware that there are no other relaxations in respect of director’s duties etc.  It is unlikely that the changes to wrongful trading will validate behaviour that is reckless.

If you are a director of a company being pursued by a liquidator or administrator it is imperative that you seek advice as soon as possible in order to defend yourself from proceedings and/or to mitigate your personal liability by way of a negotiated settlement where possible.

Company & Individual Voluntary Arrangements.

CVA’s and IVA’s are arrangements which allows the company or individual to reach a binding agreement with its creditors in relation to its debts.    CVA’s and IVA’s often involve an agreement to settle a proportion of debt, to settle debts over a longer period of time or a combination of both.

A CVA is a contractual arrangement which can be used to restructure debts and potentially allow a company in financial distress to continue to trade.

An IVA allows the individual to make a contribution to unsecured debts which will be accepted in full and final settlement.

Actions brought against you.

If your business is faced with CCJs, statutory demands or a winding-up petition early advice is key, particularly if there is an opportunity to renegotiate payment terms with creditors on either a formal or informal basis.

How we can help.

Advice from an insolvency solicitor can be key to understanding what your options are.  We act for insolvency practitioners, creditors and directors in relation to all manner of insolvency claims including claims for misfeasance of directors, under value and preference claims, transactions defrauding creditors and wrongful and/or fraudulent trading.

We will shortly be releasing details of a webinar “COVID-19 & Insolvency – What this means for you and your business” to receive information please register at KBL webinars & updates.

If you need help or would to talk through your situation with an expert then please contact  Kathryn Maclennan KMaclennan@kbl.co.uk or Richard da Roza rdaroza@kbl.co.uk or call 01254 268790 / 01204 527777.