24th March 2020
What a week! We’re amidst a global crisis: one that none of us have seen, and hopefully will never see again. It is placing the most extraordinary physical, emotional and financial pressures on us all, and we are being asked to unite and adapt. Some businesses are thriving, whilst others are left feeling destitute.
A moment of relief for some came from the Government setting out a vast range of measures to support the economy. However, these measures are evolving daily and are, in many cases, in need of clarification. With such a fast-moving landscape, making decisions becomes difficult.
Directors have been left in a very real position, having to take action on the shape of trade, staffing (whether to retain, furlough, re-allocate), as well as consider the needs of the country, duties of care to staff (including vulnerable workers) and those around them, clients and business contacts. With the use of a crystal ball, they’re expected to understand the impact, cost and point at which the country will return to its (new) norm, and what this means for them.
To cap it all off, directors may still face risks of personal liability if they are later considered to have gotten it wrong.
What directors should remember
The law as regards the responsibilities of directors remains unchanged – albeit with moves to alter the rules in Australia and Germany afoot (the UK yet follow). For now, here are a few issues to consider when walking this tightrope. Please note: the following words are only intended as cursory guidance, given the huge amount of data directors are currently being asked to consume.
If these duties are breached, directors can face personal liability.
What this means is that directors need to be on top of things and to take reasoned decisions. It does not mean that, as a matter of course, every business facing a risk of insolvency must commence insolvency proceedings. For some, that would itself cause avoidable loss. Regrettably, it may be inescapable for others. In the current circumstances, there could be an alternative solution: temporarily ceasing to trade.
What can directors do?
Directors should seek advice early, and work closely with their book keepers, financial controllers/finance directors, and can be assisted by accountants, insolvency practitioners and solicitors. Understanding cashflow and pinch points is critical. If deciding to continue to trade in difficult circumstances, we would recommend directors consider the following tips:
This might feel a bit like 12 rounds in the ring with Rocky, but with proper training and prep, it might not yet be time to throw in the towel.
Be informed, be considered, be deliberate, and above all, BE SAFE.
To discuss the options for your business, please get in touch with a member of the Restructuring and Insolvency team.