The fast and ever evolving circumstances arising due to the COVID-19 outbreak is wreaking havoc on the way people do business. Some of you are facing increasingly difficult trading situations. Some cannot trade at all.
In the changing environment, it might feel like there is nothing you can do to maintain your position and protect your livelihood. It’s true that many things may be out of your control right now, but there are things you can do to help protect you and your business now.
1. Take stock – what is your position?
The first thing to do is to take stock of your business, both front end and back end.
Next, assess the state of your company’s accounts. What debts does it have? What assets can it call on?
Also, ask yourself questions like can I continue trading to keep the business afloat? If so, how does the way I trade have to change? How will this change the cash flow of my business and its ability to meet its debts as they become due and payable?
Based on the outcome, consider creating a contingency plan that would apply over a series of varying scenarios for the next six months. We can’t predict how this situation will evolve, but if you have a series of scenarios that might apply, you will be in a better position to respond when things change.
2. Take action – implement steps to protect your business.
When assessing your accounts, consider the amounts owed to your business. When are these amounts due? Do you anticipate any difficulties in receiving payment? How will this impact your company’s ability to pay its own debts? If you identify problems, get on the front foot. Talk to your customers and your suppliers. By acting early, you may be able to agree a mutually suitable payment plan.
If you anticipate difficulties in paying your company’s debts or complying with its obligations, it may be appropriate to consider entering into deferral or stand still agreements to protect your company’s position and avoid insolvency. A standstill agreement sits along any current contractual obligations your company may have (such as supply agreements). Parties can agree not to take general or specific enforcement action under any existing contractual arrangements for an agreed period of time. Under a deferral agreement, parties to a loan or credit sale contract can agree to vary that contract to defer the payment of an amount due under such a contract.
Each of these options may buy your business the time it needs to comply with its obligations without becoming insolvent. This may be particularly relevant if you are unable to trade for the foreseeable future.
You may also consider whether there are any off-set opportunities available to your business which can minimise the amounts your company has to pay out to third parties.
Next, ensure that any shareholder or director loans are properly documented, with security where appropriate and applicable.
You may want to seek professional advice where appropriate. There are often a number of steps that can be taken to protect a business. The effectiveness of those steps will be dependent on how well they are put into place. Businesses with more complex situations may call for a number of steps to be taken and it is important to ensure that these are done in a way to properly protects businesses and don’t simply create new problems in and of themselves. Ensuring that agreements are properly drafted, thought through and effective will make a significant difference to the ultimate outcome for your business.
Be aware of the relief being afforded to businesses by changes to legislation. For more information, please visit our COVID-19 Resource Centre here.
3. Plan for the future – this too shall pass.
Amongst all the mayhem, it is important to remember that at some point, the current situation will pass. Make sure you are ready to restart or increase your business activity when that happens.
These simple steps can apply to businesses and companies of all sizes – taking straightforward action can have a significant impact on your business. Remain in dialogue with your customers and suppliers and reach out to your professional advisors when you need assistance. If you would like to discuss your position with any of our team of insolvency experts, Holding Redlich remains open and able to service its clients as needed.
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this newsletter is accurate at the date it is received or that it will continue to be accurate in the future.