We are all living through extraordinary times in light of COVID-19 and many small to medium (SME) businesses in particular sectors are being hardest hit including the retail and hospitality industry.
If you are a Company director then the key consideration in the current climate is to recognise when the business may become insolvent and to understand “symptoms” or “signs” of insolvency such as threats from creditors, constant late payments to suppliers or reaching borrowing limits. In addition it is important to carry out regular “cash flow” or “balance sheet” tests to determine how the business is doing. If you believe that the Company is in financial difficulty then you should seek professional advice as soon as possible from an insolvency practitioner and it is important to follow that advice. Some companies may be able to trade out of a difficult financial position over a period of time but a directors meeting should be held as soon as possible to assess the company’s financial position.
- Regular board meetings should be held to constantly monitor the situation and detailed minutes should be kept of each meeting;
- Professional advice from an insolvency practitioner such as a solicitor or accountant should be sought and followed;
- Directors should be prudent if they believe that the Company cannot continue to trade or they may expose themselves to a claim for unfair (previously wreckless) trading;
- Directors should also be mindful of the risk of personal liability as set out in Section 160 of the Companies Act 2014 (as amended);
In our next post we will look at Examinership which is a court managed restructuring process for insolvent companies.
If your company or business is struggling at the moment, it should always be remembered that there is help out there. If you believe your Company is in trouble then it is important to reach out for professional advice as soon as possible.