A roadmap for re-opening

The recent government announcements regarding the roadmap for easing Coronavirus restrictions will have been welcomed by many company directors throughout the North West. 

The staged dates for scheduled reopening provide a greater element of certainty for business owners and may lead to optimism that pent-up demand for services in hospitality and similar industries will enable businesses to successfully reopen. 

However, the news may unfortunately come too late for a number of companies - the latest Red Flag Alert for Q4 2020 revealed there were 10,863 business in ‘significant distress’ in the Lancashire region. A number of companies have been artificially supported by the Government’s aid measures and whilst these won’t be removed overnight many will struggle to operate without this support and with the burden of immediate cash flow requirements. 

What steps can be taken?

So, what steps should a proactive director take to deal with the position? What is their roadmap to reopening and what should they consider if they are in difficulty? There are number of steps that all directors can take. 

Accurate information – It’s not uncommon for many business owners to only produce cash flow forecasts or targets when their annual accounts are due. The key to assessing the extent of the difficulties is current and accurate information. Directors should be preparing weekly or monthly cash flow forecasts detailing the immediate requirements. 

Respond Accordingly – Once the position and requirements are known directors will need to address any gaps in funding or immediate cash flow requirements. Can cost savings be implemented, is there opportunity to secure additional turnover, will creditors be willing to take payment over longer periods?

Business Interruption Insurance – The Supreme Court has ruled upon the interaction of coronavirus and business interruption insurance and estimates suggest as much as £1.8 million worth of claims will be paid out across a variety of policies. Directors should check their policies and see if a claim can be made for loss of earning.

Bounce Back Loans – Borrowers now have the ability to extend repayments up to 10 years, make interest free repayments, and take payment holidays of up to six months, all options that may provide some much need breathing space and affordability

VAT deferment – Similarly HMRC have launched a VAT deferral scheme for VAT that was deferred from between 20 March and 30 June 2020. The scheme can be joined between 23 February 2021 and 21 June 2021 and the earlier a borrower opts in the greater number of monthly instalments they can make. 

Alternative funding – Many businesses may need to plug holes in cashflow by raising additional finance. In addition to traditional high street loans business owners may want to consider alternative sources such as invoice finance or factoring; asset finance (including lenders provide assistance with stock purchases) and peer to peer lending. 

Director’s Exposure

Directors of struggling companies should also consider their position and potential exposure if their company is placed into a formal insolvency process. This could lead to calls on personal guarantees that may be particularly relevant now the reinstatement of secondary preferential status has ensured HMRC will be paid ahead of secured creditors in a number of instances. 

Directors will also need to consider whether their conduct and use of funds will give rise to any personal liability and whether or not an overdrawn director’s loan account has accrued. This latter situation will be particularly common in cases where the director/shareholders are traditionally remunerated via dividends and the company has lacked the reserves for these to be lawfully paid. 

Seek Advice

It is important for directors to remember none of the factors or steps to take exist in isolation. They will need to take an overall approach and consider the position in its entirety. Company directors who are running a distressed business should explore all their restructuring options now if they are to survive and seek early advice where possible. Getting together a proactive creditor strategy, fresh re-financing package or a tax efficient disposal of the business needs to be high on the agenda for directors at this moment in time.  

You can arrange a consultation with Ian McCulloch, licensed insolvency practitioner and partner at Begbies Traynor, by calling 01772 202000 or 07854 031177.