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Company Directors - What should they do next?

For the majority of companies, the Covid-19 restrictions represent the most serious financial challenge in living memory. The disappearance of demand for goods and services almost overnight has given little time for financial planning or preparation. The uncertainty as to the length of time, for which restrictions will be in place and the points at which those restrictions may be tightened further or partially relaxed, adds to the difficulty.

The UK Government has a stated aim of supporting businesses through the crisis with a view to avoiding mass unemployment and a total collapse in consumer spending whilst keeping companies in a position where they can respond quickly once restrictions are lifted. Whilst the initiatives are both unprecedented and helpful, company directors are still left with difficult decisions in a rapidly changing environment. So what should they do?

  1. The starting point is not to panic. In other times, directors faced with a sudden and huge loss of income would need very rapidly to consider their insolvency options. However, the Government initiatives are designed to give time and breathing space.

  2. Understand the company’s current financial position. It is, of course, important to understand the company’s balance sheet position, but cashflow will be key so an early assessment of available cash, the collectability of sums owed to the company and the company’s short term outgoings is crucial.

  3. Understand what the current trading prospects of the company are. For some, this will be clear because Government restrictions will have stopped them trading altogether, but for others, trade will be continuing but at a reduced level.

  4. Understand what support is available in the form of grants and reliefs. These include VAT deferment, HMRC Time To Pay Schemes for PAYE and NI, grants to small businesses, business rate relief for retail and hospitality businesses and assistance with Statutory Sick Pay. Others may well be announced over the coming days and weeks.

  5. Consider whether the employee furlough scheme will help. The scheme allows employers to stand employees down temporarily and recover 80% of their employment costs from the Government.

  6. Consider taking loan finance under the Government’s Business Interruption Loan Scheme. Finance is available in the form of overdrafts or, more likely, term loans. Loans will be interest free for the first 12 months and the Government’s aim is to assist banks to advance loans by supporting up to 80% of the loan’s value

  7. Take advice. Directors should not feel either that they need to tackle this on their own. They should also not feel that their business is unique in experiencing financial challenges at this time, it is a widespread issue affecting a huge number of businesses. Advice will be available from accountants, lawyers and insolvency practitioners

  8. Even if directors conclude that their company will not be able to get through without some relief from creditors, the Government has announced that new restructuring procedures will be made available and wrongful trading rules will be suspended until June. The detail of these measures has yet to be made clear, but they are likely to give further breathing space to hard pressed companies and directors.

The landscape is changing rapidly and it seems certain that the Government will announce further measures to help businesses on an ongoing basis. The Government’s information pages at www.gov.uk publications contain comprehensive and up to date advice on available support.

The Corporate Services Team at Prettys has long experience of advising company directors in good times and bad, including restructurings ranging from many millions of pounds to smaller SME’s. We have worked extensively with clients’ accountancy advisers and funders and with insolvency practitioners to provide solutions to financially challenged companies over the last 30 years. If you wish to discuss any of the issues raised in this note, please contact Ian Waine on 07979 498817 or iwaine@prettys.co.uk.

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