As lockdown is gradually eased and businesses are beginning to look to the future, important decisions will have to be made about the size and shape of the business going forward.
In many cases accrued rent arrears and government backed loans may have rendered companies balance sheet insolvent and in these circumstances, directors must act to protect the interests of creditors.
Create a business plan and a cashflow forecast. You will need these for any negotiations with stakeholders such as landlords, lenders and suppliers to satisfy stakeholders and yourself that the business is viable going forward. These documents should be reviewed and updated frequently.
Ensure that there is a sensible division of responsibility at board level to deal with the issues highlighted below. It is important that the board is and is seen to be working towards the same objectives.
Hold regular board meetings, carefully document all decisions and the reasoning behind them and make a note of any dissent. Record all sources of information that may not be available in the future, taking a screen shot where printing may not be an option.
As a board member you may not agree with all the decisions that are being made. However, if there is any doubt as whether the business is insolvent on either a cashflow or balance sheet basis (even if your business plan and cashflow forecast suggest this is temporary) you must put the interests of creditors first. Resigning usually runs contrary to that duty. Always keep a detailed note of areas of disagreement, the steps taken to resolve these and the outcome. Resignation should always be a last resort.
Accounting records should be kept up to date so that at any given time the financial position of the company is visible. As lockdown is eased levels of consumer and business confidence are uncertain and therefore plans may need to be changed at short notice. This cannot happen without accurate financial information.
Where rent has not been paid during lockdown, negotiate with the landlord regarding the timing and payment of any arrears and future rent. Consider the pros and cons of a further deferral of rent leading to a debt on the balance sheet, versus the cashflow implications of monthly/quarterly payments. Consider asking the landlord to apply the rent deposit against any arrears without seeking a top up. Remember, the Landlord is unlikely to want the premises back at this point and this puts tenants in a good position to negotiate.
Consider carefully future staffing requirements. Realistically many businesses are likely to have a reduced turnover once they are able to fully re-open and may not require all their existing staff so the sooner redundancy consultation begins the sooner the business can move forward in a slimmed down form.
Cash is king so all outgoings should be minimised and contracts with suppliers and customers should be reviewed. Customer payment terms should be shortened and strictly adhered to. Consider extending supplier payment terms but in doing so be careful not to incur debt that the business cannot subsequently discharge.
Give careful consideration as to how you will deal with historic debt. Where this debt is owed to your suppliers, you may need them to support your business as it moves forward. Therefore, a negotiated settlement is a good option. However, care should be taken to treat all creditors in the same way. Do not pay some creditors and not others because in a worst- case scenario if your business is ultimately wound up, preferential payments to creditors can be clawed back and the directors’ conduct in causing such payments to be made can be criticised and ultimately lead to personal liability to compensate the company.
Avoid using accrued crown debt as working capital. Whilst HMRC have temporarily deferred payment of VAT and extended “time to pay” arrangements, this position will not last forever. Your cashflow forecast should include payment of accrued crown debt in accordance with agreement with HMRC as to the timing of repayment.
If you have taken advantage of the government’s job retention (or furlough) scheme, make sure that you have operated the scheme correctly. Did you inadvertently claim for staff who were not furloughed, or did you omit to account to HMRC for PAYE and NICs on furlough payments? If you have any concerns, it is better to own up and rectify the problem early than wait to be found out and be left with an unexpected hole in your cashflow forecast.
If you are concerned that your business may not be viable in its present form and you believe you have exhausted all the options to rectify this, you should seek professional advice from an insolvency or restructuring professional. It may be possible to save all or part of the business as a going concern through a restructuring or a company voluntary arrangement. Alternatively, you may be advised to place the company into a formal insolvency process such as liquidation or administration. You are unlikely to be criticised for taking and following professional advice because doing so in these circumstances is fully consistent with your duty to put the interests of the company’s creditors first.
Should you have any questions or queries please contact our team.
It took until 2004 for the Civil Partnership Act to be passed, another year for the Adoption and Children Act 2002 to come into force (in 2005), and the Marriage (Same-Sex Couples) Act to be passed in 2013. Dal Heran discusses same-sex partners and raising a family.
Following a BBC Panorama Freedom of Information request, the programme established that, of 111 ‘invited review’ reports prepared by Royal Colleges in response to hospital requests to review aspects of patient care, only 26 have been disclosed to regulators (including the CQC) and, of those, only 16 have been published in full.