Funding for Charities

Webinar - Charities

About This Webinar

Thursday 21 October, 09:30 - 10:15 BST

Running a charity, just like any other business, carries risks for everyone involved. The last 18 months have been difficult for all charities and you may now be considering a different approach to your funding strategy to perhaps maximise the benefits from your existing assets or to bolster your existing funding streams.  In this webinar our Partners Rachel Gwynne and Naomi Tudor alongside David Kearney from Lloyds banking, explores and discusses the following key points:

  • Getting ready for funding – what things should a charity think about before seeking funding? From ensuring you have the necessary powers to borrow to understanding the Charities Act disposal regime requirements, we’ll talk you through the things you need to know

  • What assets can be used as security – understanding your asset base and how to prepare them for borrowing

  • What funding and other financial support is available from mainstream banks

  • What other funding may be available to charities

Our Speakers

guest-speajer

David Kearney

Lloyds Banking

Charities

Operating in the charity and not for profit sector has never been more challenging or more stimulating with social, economic and political upheavals, scarce resources and mounting needs and expectations

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(Please note this is auto-generated and un-edited)

0:32
Good afternoon. My name is Christopher von Strandmann, and I'm a banking partner here at Shakespeare meatineau and welcome to today's webinar on coronavirus and the impact that it will have on your banking facilities.
0:45
The implications of covid-19 are fast evolving and we have seen a number of Institutions becoming increasingly concerned about the impact that it will have on their business in the UK. And the rest of the world. There are health concerns disruptions to work as abilities to come into the office supply chains in terms of both products and goods being delivered on time as well as services. So for example, valuations been done or Auditors been able to sign off and accounts. We also have the General market conditions in relation to the ftse that we've seen.
1:15
And earlier this week the bank of England further reduced interest rates and the government announced the raft of new measures to help businesses going forward more information on which we hope to have as quickly as possible each of these issues when taken together as a whole will have an impact on company's existing banking arrangements as well as their ability for them to put in place new ones as they look to either refinance or make Acquisitions.
1:41
The purpose of this webinar today is to discuss on a very high level some of the the issues and themes that borrowers may need to consider over the next few weeks and months noting. Of course that each loan agreement is specific and will have been negotiated with specific contractual wording. So as the government moves to quite understandably try to prevent further contagion where possible we saw the chancellor and prime minister statements yesterday and business of all shapes and sizes will already be feeling the economic pressures pressures of the crisis business as usual has been the overriding message.
2:15
But with recent school closures and pubs and clubs being shut down the government has been trying to provide certainty and assistance to companies.
2:25
In order for business as usual to become a true reality though contingency plans needs to be put in place rather than trying to be too exact about finer details at the moment a thorough plan should be considered by a number of for a number of possible scenarios along with company impact analyses, which can Flex depending on the changing economic and social landscape.
2:48
all organizations even those with the generous generous cash reserves would be wise to open up lines of communication with their Banks sooner rather than later as funding is going to be critical for the coming months particularly when it comes to cash flow the requirement for unexpected investment in extra stock to prevent supply shortages should come as no surprise in this situation is essential to speak to lenders about overdraft facilities and potentially opening new light revolving lines of credit, especially if Supply As up the chain also behind on payments due to cash flow pressures the nature and the spread of the covid-19 means that an increasing number of workers are going to be self isolating if they became if they begin to demonstrate symptoms. And even now we see people are being told to work from home in an attempt to spread attempt to stem the spread of the virus. However for businesses the impacts could be severe if a large proportion of the workforce Workforce are unable to work new regulations.
3:48
Nations which came into Force last week state that employees who show covid-19 symptoms and self isolate in accordance with published guidance and now entitled to claim statutory sick pay from day one despite promises that the government will refund these payments the time frame remains unclear and the lag for reimbursement could put even more pressure on cash flow. Especially if temporary workers needs to be recruited to provide cover and this is why we are recommending businesses to pick up the phone and arrange new revolver.
4:18
In credit lines an overdraft facilities as quickly as possible. Should they feel the need to employee base is moving to work from home aside from throwing up operational challenges could require businesses to unexpectedly Source Capital to provide suitable it equipment such as laptops and mobile phones. All of this will be necessary to keep businesses wheels turning but this investment has to come from somewhere and if cash reserves don't look like they will stretch far enough talking to Banks.
4:48
Banks about potential short-term funding options would be a wise move now cash flow for expenditure aside and many businesses will have several funding agreements in place with different banking institutions attached to these could be different covenants, which could be breached depending on the evolving consequences of the covid-19 crisis. For example, some agreements will often contain clean down conditions which require businesses to keep accounts and credit for a set number of days each month.
5:18
Other covenants which could cause issues may be around leverage and debt servicing ability. If a business is a we're ahead of time that a breach is likely then a proactive stance could be taken to mitigate against mitigate against this however any business owner who is unsure should ask the advice of their banking advisor and relationship manager sooner rather than later.
5:43
The UK banks will be doing their bit for the business Community. The sector recently came out with a list of emergency measures including suspending loan payments and fee-free Emergency Loans to help businesses already facing challenges, its early days still and support amongst the banking Community is only likely to increase this alongside the government's apparent willingness to try and help businesses in the short-term should come as a positive. However, no matter how great the support on offer is Banks hate.
6:13
Says they won't know what they don't get told so for our Bora Bora clients with saying open a dialogue at an early stage and lay your cards on the table at this is far more likely to result in a workable support support support. Then the bearing your heads in the sand. Also, it's important for businesses to realize they're not alone when asking for assistance. This will become a common theme across the whole of the UK in the next few months.
6:42
Commercial ad on certain times like this is having a place in plan which can Flex as circumstances change around the country Business Leaders who feel like the pressure of decision-making rests solely on their shoulders should aim to involve other employees and employee groups extraordinary times call for Extraordinary approaches and faced with uncertainty. That's no bad idea. No one is under the illusion that in the coming weeks and months. It will be easy for UK businesses and their communities. However, financial support will be out there.
7:12
And it's essential that lines of communication between organizations and their funders are kept open to ensure that wherever possible UK business weathers the storm and comes back fighting.
7:23
So going into a bit more detail on facility Arrangements more. Generally. I'm going to look at a few Provisions actually seen come out recently as well as responding to a few questions over the last 24 hours. Number one interest rates the bank of England cut interest rates last week and then further cut them to not point one percent yesterday. So this means that borrowers are floating rates who are paid to base rates should see a reduction in their monthly and quarterly outgoings.
7:53
Committed funding certain funds transaction transactions are either required for regulatory reasons usually due to take take over laws or because the vendor of particular asset wants to bank back certainty on new purchases ability to close the transaction and thus will not allow a financing condition in its sell and purchase agreement in a certain funds transaction in the m&a market.
8:15
There are generally very limited conditions which will allow financing parties to withdraw their commitment committed funding from the transaction and say, Covid-19 should not have an impact on existing committed funding arrangements and so a bill its purchases ability to draw down and close should not be negatively impacted. However, whilst existing Arrangements should not be of an issue.
8:38
The requirements provider committed funding line met in the short term but some funders off looking at New Deals as they look at market conditions and the possibility of a recession as well as the ability to Syndicate while the Coronavirus so action develops material adverse change is also a point which borrows needs to look at. There are generally three limbs to a material adverse change clause in the business of the borrower payment ability and a more General market one. It's relatively rare to include Mac Clauses in an acquisition financing as a doorstop, but they can be included under circumstances.
9:18
Looking at the three limbs of a material adverse change provision will have got business first. So most facilities will have a business Mac it typically relates to an adverse effect on some of some or all of the business condition operations performance assets or prospects of the borrower given where the UK is on the curve of the outbreak is difficult to say what the impact will actually be and how or when it will affect any particular business.
9:45
However, to extend that the existing circumstances subsist for a significant period of time particularly as businesses report on q1 2020 was Financial results. We expect then the lenders to monitor these Provisions more closely. You have the payment material adverse change which relates to the borrower's ability to pay to make its payment obligations under a finance document payment obligations are fairly straightforward to determine and traditionally focus on a 1 to 6 month time frame accordingly to trigger this.
10:15
The relevant lenders would need to probably establish that the issue that the borrower will be unable to make its payment obligations over the such a time frame. This can be difficult for lenders to prove.
10:28
We then go on to the market Mac, which is much wider and a more General provision, which looks at the Mark General market and could relate to currency fluctuations share price and other such matters as we have all seen The Wider stock market has generally reacted negatively to covid-19. And so may this may give lenders the ability to call the default in these circumstances that being said even back in 2008 to 2010. This provision was very rarely used and lenders will often.
10:58
To avoid using this provision as a means of enforcement, but that may nevertheless also have market conditions may have an impact on be able to Syndicate or bringing in New Deals.
11:10
You then obviously have the financial covenants and most loan facilities will have a certain level of these. So for example property-based deals will have an LTV Covenant.
11:20
And they will they will usually be a provision in there which will allow A lender to attain a valuation which when it believes or reasonably believes that an event of default would occur.
11:31
It's going forward borrowers need to be aware of this as banking Banks and lenders may be going to request such valuations ebitda or more corporate based covenants will be based on the annual or quarterly accounts for business and will be certified through the usual compliance certificate read this breach is that we believe will become more likely over the coming months as the end of q1 accounts for 2020 become too we then move on to litigation and creditor processes as businesses start to feel the strain it's likely that litigation or creditors process Provisions will be looked at by lenders especially when other debtors feel that there is a need to take action there is often a provision which allows for discharging such actions within a certain period of time but in the event that a borrower experiences such issues it's vital and it takes sound legal advice and speak to Banks as soon as possible There are also the ongoing reporting requirements. So you have quarterly or monthly reporting which is a general undertaking underfinanced documents and this typically requires audited annual and unaudited quarterly or monthly accounts to be delivered to A lender or agent within a certain specified period of time businesses interrupted by coronavirus May face certain reporting issues such as an inability to obtain accounting information due to facility closures.
12:56
There is generally no provision within a facility document for additional time for filing such information due to external issues. And so again, we would suggest that borrowers pick up the phone to their lenders if they do experience such issues.
13:13
Please do get in contact with anybody at Shakespeare Martineau going forward if you have any queries or questions, and thank you very much for listening. We have had a few questions come in today earlier on today, and I will try to answer those as quickly as possible. Please do keep looking at our LinkedIn page and our website for any further updates. Thank you very much. Bye. Bye.

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Webinar transcript

(Please note this is auto-generated and un-edited)

1:30
Welcome to today's webinar the latest in our series on the impacts of the coronavirus on your business this afternoon. I look at minimizing Financial Risk to business. I'm Sean Moran a partner in the restructuring and insolvency team here at Shakespeare Martineau.
1:49
You will see on your screen that you're able to ask questions. So, please do raise these along the way and I can answer as many as I can at the end. The coronavirus pandemic is having a devastating effect on individuals and businesses across the globe for companies in this country.
2:05
The outbreak comes against a background of concerns across all sectors caused by uncertainty surrounding brexit and the risk of a no deal at the end of this year as well as a General downturn in markets across the world The immediate effect of the outbreak has been A disruption to supply chains with a lack of availability or delays to supplies where supplies are sourced from the Far East and just-in-time deliveries are critical for some sectors such as retail or Automotive. The consequences are already having a major impact on trading projections for the first two quarters of 2020 and Beyond.
2:49
Many businesses have found themselves unprepared for this situation without appropriate contingency plans to deal with major disruption events.
3:00
It is important to realize that this does not just affect companies who do business with China the spread of the pandemic around the world has led to restrictions on the movement of people which presents challenges to all businesses these restrictions of cause further problems for struggling operators in specific sectors already facing trading difficulties in particular the travel and Leisure sector.
3:25
The recent demise of Airline flybe shows how quickly an adverse situation can develop with widespread disruption leading to a cessation of trading and the appointment of Administrators to the company.
3:42
Restrictions on public Gatherings by many European governments with the UK shorter follow shortly or mean that restaurants hotels and other businesses in the Leisure sector will continue to struggle with the less robust being forced to fold even buoyant businesses with strong order book and secure Supply chains. May face challenges as a result of the virus.
4:09
Companies do have a duty to ensure the health and safety of their employees and many are now being forced to adapt working patterns, which may lead to a loss or reduction of production causing further strains on the balance sheet.
4:25
Against this background directors must be increasingly aware of their duties and responsibilities with a heightened risk of insolvency for many businesses. So what are the immediate steps directors should take to minimize risk to their business? Well first it's important to note that directors have a duty under the companies act to promote the success of a company for the benefit of its shareholders.
4:51
But when a company is faced with challenges to its operations placing it in an insolvent position those duties change and the interests of the companies creditors become Paramount.
5:04
Perhaps the most fundamental fundamental thing to bear in mind is that directors must have the availability of relevant financial information directors should ensure that they have access to management accounts for the company on a regular basis.
5:24
This will enable them to make key decisions on a properly informed basis for the benefit of the company and its creditors directors should also ensure that the company does not continue trading when there is no realistic Prospect of avoiding a formal insolvency process.
5:44
The particular risk here in terms of ongoing trading would be claims against the directors by a liquidator for wrongful Trading.
5:54
Now a claim for wrongful trading if successfully proved could result in the directors having to make significant compensation payments to the company acting by its Liquidator.
6:09
where a company is in financial distress directors should take particular care to avoid entering into transactions which involves specific dispositions of a company's assets any transfer of an asset at less than its full value or any payment made exclusively to a specific creditor where other creditors are excluded from payments may be subject to a challenge by Liquidator or an administrator if the company Subsequently goes into a formal insolvency procedure. This could lead to a transaction being set aside and potentially action being taken against the director or directors personally to compensate the company.
6:55
It is important that the board of directors meets on a regular basis. So the important judgment calls can be made and that the directors ensure that all decisions made at these meetings are carefully minuted to create a paper trail.
7:13
Where appropriate the board should take professional advice.
7:17
Specifically before entering into any significant transactions, which may later be set aside.
7:24
Or in connection with continuing the company's operations bearing in mind the risk of a later claim for wrongful Trading.
7:34
So what steps are there that you can take to protect your business? But it's important that directors engage early with key stakeholders in particular the company's Bankers who may have the right to appoint administrators if they hold a debenture and there is a breach of the terms of that debenture.
7:57
Or it may be specific creditors of the company who provide key supplies.
8:03
And place the company at risk by present presenting a winding up petition in the event of non-payment.
8:12
It's important that constructive discussions take place to reassure lenders and creditors and where appropriate to renegotiate terms for payment or any terms for Lending.
8:25
Again, however, it's important to provide lenders in particular with up-to-date financial information to give appropriate reassurance maintaining an ongoing dialogue with key stakeholders is vital many banks will have their own business contingency plans and we'll expect their customers to make early contact. It's always better to be proactive in this regard.
8:53
Early discussion should take place regarding any need for additional Finance if required. However, once again, the directors will have an important judgment call to make here. They have to be sure that any lending does not overstretch the company's position and place it at greater risk of insolvency.
9:18
directors should take all appropriate steps to maintain insurance cover for the business obviously to protect both its existing assets, but also To protect the directors themselves against potential claims. If there is a relevant directors and officers insurance policy something that's often forgotten in the midst of financial difficulties and a difficult trading environment for a company.
9:51
Difficult decisions will have to be made in the course of any restructuring and reorganization of a business affected by a financial downturn reduction in staff numbers and other significant overheads is an important part of any restructuring exercise. John Heuvel has given advice on employment issues in an earlier webinar in this series.
10:14
Discussions with key creditors as I've mentioned will be required and if it's necessary payments rescheduled so that necessary arrangements can be made regarding the company's debts, but importantly taking care of all times that arrangements are not subject to a later challenge potentially as a preference.
10:39
Once the decision is made that a company cannot continue trading. The directors will have to take professional advice in relation to the appropriate formal insolvency procedure.
10:53
At all times it's important to minute all decisions made and where appropriate to take professional advice on the necessary route for the company to follow whether that be liquidation which will involve a complete cessation of trade.
11:12
Administration which may involve some ongoing trading under the management of an administrator or a company voluntary Arrangement where the directors of the company retain management control over the business, but subject to an agreed set of proposals over a period of time to pay creditors.
11:36
An agreed sum under the supervision of an insolvency practitioner.
11:43
Depending on the process to be adopted the timing of any cessation of trading will have to be decided by the board.
11:51
if that's appropriate and close liaison will be made with any insolvency practitioner who is to be appointed so that critical payments during any Hiatus period can be identified and made and in particular how you deal with key overheads specifically staff and any leased property staff for a key component to any business but also an expensive overhead It is important for directors to remember that although they will lose management Powers. Once a company goes into liquidation or Administration. They remain subject to statutory obligations as directors as long as they're registered at companies house.
12:41
A recent decision in the high court confirmed that a directors fiduciary duties can continue after the company has entered into an insolvency procedure as a result directors should take particular care when acquiring assets under a pre-practice transaction from an administrator.
13:03
So that they ensure full disclosure of that transaction is made and a proper value is paid for those assets.
13:11
To guard against any potential challenge by Liquidator the might be appointed at a later date.
13:21
Now most recently. The chancellor has announced some important insolvency related changes in last week's budget.
13:32
As ever with this government, it's a carrot and stick approach. First of all the carrot.
13:39
The government is launching a 30 billion pound fiscal stimulus package to help businesses and individuals through the core over coronavirus outbreak.
13:49
Although it would appear only 12 billion pounds of that is Coronavirus specific the headline elements of that package our support for businesses, including a scaled-up time to pay scheme a new coronavirus business in Corruption loan scheme, which will see loans of up to 1.2 million pounds supported by an 80% government guarantee and also a business rates holiday period for businesses and business rates as many of you will be aware.
14:26
It's a particular sensitive issue for a number of retail businesses.
14:39
the stick approach Is that hmrc will have the power from the 6th of April 20 22 make directors and others personally liable for corporate tax debts in certain situations and those situations are where hmrc suspect the director of abusing the insolvency framework in order to avoid paying taxes hmrc a looking at Phoenix situations here.
15:12
We're directors acquire their existing businesses from an insolvency practitioner, perhaps under a pre-pack or similar transaction. And where those directors are linked to a company and have a track record of insolvency. Now, there are a number of issues that need to be looked at there. We don't have time for that today.
15:35
But this is certainly something that directors need to be aware of and need to take particular care when managing companies who are struggling financially.
15:52
Well, thank you for listening to today's webinar on minimizing Financial Risk to business.
15:58
We've had a few questions come in. So I'll answer a couple now and then send a follow-up of the others along with the recording of the webinar.
16:08
The first question concerns wrongful trading. How do you reduce the risk of a claim for wrongful Trading?
16:18
We'll just to remind you the wrongful trading will occur.
16:22
When the directors know or should know that the company is likely to become insolvent and they continue to trade nonetheless and the effect of that continuing to trade is that it increases the deficit to creditors and in appropriate circumstances. If there is a finding of wrongful trading a court can order that the directors have to pay compensation.
16:50
Relating to that deficit to the company acting by its liquidator.
16:58
Now how you determine whether you should continue to trade?
17:02
In financial when the company is in financial difficulty will be a matter of fact in every case. It's an important judgment call and one that should be taken with reference to specific up-to-date financial information and professional advice.
17:19
It may be appropriate in certain circumstances to continue trading where the benefit Of doing so it's for for the good of the creditors of the company as a whole.
17:33
But professional advice must be taken at all times.
17:39
The second question if a company is in financial distress, are there any circumstances when you can pay certain creditors ahead of others?
17:49
Well, that's an interesting point. And again here you'll remember that. I covered the issue of preference payments in my presentation now in certain circumstances, it is permissible for a company authorized by its directors to make payments to certain creditors and not others without those payments being subject to a claim by way of a preference.
18:18
No circumstances will be where the particular creditor in question is a key supplier or a landlord and where the payment is necessary to enable the company to continue trading for the benefit of its creditors as a whole each situation will depend on its own facts. And again any decision made by the directors in this regard will have to be supported by both up-to-date financial information and appropriate.
18:48
Will advise properly minuted. Well, thank you for all the great questions, which I'll follow up after the session and share these with you.
18:58
The next webinar in our series is tomorrow on business and Banking and that will be given by my colleague Christopher Von stranden.
19:07
for further advice and guidance on the coronavirus outbreak, please contact our dedicated resource Hub at shma.co.uk-- Thank you very much.

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COVID 19 | Invoking force majeure

COVID 19 | Invoking force majeure

Businesses facing difficulties in meeting their contractual obligations because of disruption caused by the coronavirus should consider invoking the force majeure provisions in their contracts.

We will look at whether force majeure can be invoked and how this might help, the steps that need to be taken to benefit from the protection afforded by a force majeure provision, and whether force majeure offers an opportunity to mitigate business risk arising from the spread of coronavirus and the consequences of invoking this protection.

Further information on how to manage the impact of coronavirus can also be found on our coronavirus resource hub and you can view past webinars at SHMA®ON DEMAND.

Please do let us know of future topics that you are interested in, or for more information about our webinars please contact us.

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Webinar transcript

(Please note this is auto-generated and un-edited)

1:33
Hi, I'm Matthew Sutton a partner in the commercial team at Shakespeare Martineau. Welcome to today's webinar on the coronavirus and force majeure Clauses in business contracts. You'll see on your screen that you are able to ask me questions. So please do ask questions along the way and I will answer as many as I can at the end.
1:56
Okay. So today as I say I'm going to spend a few minutes talking about force majeure Clauses in business-to-business contracts and how they may assist businesses in attempts to manage the disruption caused by the spread of the coronavirus the background to this as you know, is the continuing Global spread of the coronavirus and the measures which have been introduced by governments across the world to combat the virus.
2:24
The impact of the fire as was first built in China in January as the world's second largest economy and largest manufacturer accounting for 20% of global manufacturing output the disruption of shipments to and from China has already had significant implications for the supply chains of many businesses in the UK causing interruptions and delay the participation continues to deteriorate with governments across the world now introducing quarantine measures and travel restrictions.
2:54
And leaving the global economy facing very uncertain times businesses facing difficulties in meeting their contractual obligations because of disruption caused by the coronavirus outbreak should certainly consider invoking the force majeure Provisions in their contracts. So what is a force majeure provision? Well put simply a force majeure provision is a clause in a contract which typically excuses one or both.
3:24
Of Contracting parties from performance of the contract in some way following the occurrence of events beyond the reasonable control of the party concerned.
3:36
The term force majeure has itself no recognized legal meaning so it's important to remember that whether a business can invoke a force majeure provision in a contract will therefore generally depend upon the wording of the Clause an important. First point to having mind. Therefore is how is force measured defined.
3:58
Well some force majeure Provisions May reference specifically pandemics epidemics, or Civil emergencies. However Clauses often simply reference circumstances beyond the reasonable control of a party in the absence of specific wording.
4:18
It will be important to consider the scope of the Clause carefully to determine whether it will include the corona Outbreak The coronavirus outbreak or any related government restrictions. It's important to remember in this context that a party can invoke a force majeure provision. Generally only where it is prevented from performing its contractual obligations. The fact that performance may be more difficult or more costly will typically not be sufficient.
4:46
For example It's a well-established principle under English law that a changing economic or Market circumstances affecting the proverb and profitability of a contract or the ease with which A party's obligations can be performed will not be regarded as a force majeure event in one particular case the high court found that the inability of a company to obtain Finance due to the collapse of the world's financial markets in 2008 did not trigger the force majeure clause in a contract to purchase an aircraft.
5:23
So assuming the scope of the force majeure Clause potentially covers the events taking place currently what steps do we need to take to obtain the benefit of a force majeure provision?
5:37
Well frequently force majeure Provisions can be invoked only when notice is given by the affected party within a specified time of becoming aware of the impact on contractual performance. For example, it may be a contractual requirement that notice is given by a party within 3 business days of it becoming aware of being unable to perform its obligations due to the force majeure event.
6:03
Failure to give notice within a prescribed time inmate potentially means that the benefit of the Clause could be lost where there is no specific notice provision notice should generally be given by a party as soon as it becomes aware that it is unable to perform its obligations due to the force majeure event.
6:25
Force majeure Provisions will also generally require the affected party to show that it is used reasonable Endeavors to prevent or at least mitigate the effects the effects of a force majeure event in this context.
6:39
The court of appeal has held that language in a force majeure clauncher clause which refers to events beyond the control of a party can only be relied on if that party has taken all reasonable steps to avoid the Insert the event or to mitigate its results.
6:59
Okay, so we've taken the steps necessary to invoke out force majeure provision, what are the consequences of of invoking that provision well generally the effect of invoking a force majeure provision is to suspend contractual obligations for the period during which the force majeure event prevents contractual performance once the event has come to an end the obligations of the parties recommence So effectively once a force majeure provision has been invoked the affected parties liability for failure to perform is usually removed for so long as the force measure the event continues. It's important.
7:44
However to remember that force majeure Clauses May often also include a right of termination for either or both parties if the force majeure event continues Beyond a specified period of time It's also important to have in mind that force majeure Provisions may include a right for either or both parties to terminate the contract if the force majeure event continues Beyond a specified period of time so for example a clause my typically say that if a party continues to be unable to perform its obligations for a period of say 14 or 30 days the other party May terminate the contract immediately by giving written notice.
8:27
In those circumstances the party terminated the contract will not be liable to pay any compensation to the party suffering from the event of force majeure.
8:40
So Faith with the possibility of disruption due to the coronavirus outbreak businesses should consider invoking their Force visual Provisions to do this. It's important to have in mind the following actions review your contracts do they contain force majeure Provisions? If so, it's important to understand the scope of the Clause. Does it specifically referred to a pandemic or are you relying on General word?
9:09
I think that refers to events beyond your reasonable control.
9:15
Be aware of any steps that need to be taken to trigger the protection which the Clause May afford. Do you have to give notice within a specified time period if you do you need to comply with that time period otherwise protection may be lost. If there are no specified time periods. Then you should give notice as soon as possible consider what mitigation actions can be taken remember? It is often a condition of claiming the benefit of force majeure.
9:45
That you've acted reasonably to avoid the event concerned or at least to mitigate its consequences.
9:54
Does the business have a contingency plan? Obviously that's important in the context of mitigation has that contingency plan been implemented?
10:04
Be aware of the consequences of invoking a force majeure clause in particular. Does it give rise to a right of contract termination to the other Contracting party?
10:17
In the context of coronavirus, it's important to consider invoking force majeure Clauses in business contracts. And in this context, it is particularly important to act rapidly when analyzing whether this route is potentially available to you. Okay, so thank you for listening to today's webinar on coronavirus and force majeure Clauses in business contracts. I have had a few questions come in so I will answer.
10:46
A cancer a couple now and then send a follow-up to the others along with a recording of the webinar. So the first question I have is what happens if my contract does not contain a force majeure Clause well in those circumstances it is possible that the doctrine of frustration could apply so the doctrine of frustration is an English law concept which provides that if a contract has become impossible.
11:16
Possible to perform all the parties obligations are changed radically by the occurrence of an event after the contract has been agreed. It is possible that the contracts that the Contracting parties can set aside their contractual obligations. It's important to remember though in the context of frustration. That courts are generally reluctant to find that a contract has been frustrated.
11:43
So it's quite a hard thing to To to achieve before a court again as with force majeure Clauses. It's also important to remember that an event that renders contraction performance more difficult or more costly will not have itself be sufficient to achieve the result of a contract being frustrated. So the contract must be impossible to perform or all the obligations of the parties must have changed.
12:16
radically So second question I have received is a chi rely on a force majeure Clause if there are also other reasons why I cannot perform my contract which had nothing to do with the force majeure event. So in the current situation, they may be nothing to do with the outbreak of the coronavirus all the restrictions that may have been introduced to combat the spread of the virus.
12:45
Well the short answer to that question is No, you can't rely on a force majeure clause in those circumstances. The high court has determined that in order to rely on a force majeure Clause the force majeure event must be the only effective cause of a part in failing to comply with its contractual obligations. So a Contracting party will not be relieved of its contractual liability under a force majeure Clause. So Contracting party will not be relieved of its contractual liability under a force majeure.
13:18
Your claws if it would not have been able to perform its obligations, even if the force majeure event had not occurred.
13:26
Okay, so thanks for the great questions. I'll follow up on these after the session and share them with you the next webinar in our coronavirus series is tomorrow at 12:30 on business leases with Justine all thanks very much for watching for All Our advice and guidance on coronavirus. Please contact a dedicated resource Hub at shma.co.uk or contact me at Matthew.sutton@shma.co.uk, thanks very much.

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Preparing for the recession

Preparing for the recession

The true economic impact of COVID-19 will be felt worldwide by businesses and individuals for many years to come, with the Bank of England warning that the UK economy is heading towards its sharpest recession on record.

This webinar will look at the lessons learnt from the 2008 financial crisis and what businesses should be doing now to prepare to survive the next recession.

Please do let us know of future topics that you are interested in, or for more information about our webinars please contact us and you can view past webinars at SHMA®ON DEMAND.

 

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Webinar transcript

(Please note this is auto-generated and un-edited)

 

 

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COVID-19 | AGMs and financial reporting for publicly traded companies

COVID-19 | AGMs and financial reporting for publicly traded companies

In light of the uncertainty and disruption caused by COVID-19, the FCA, FRC and PRA have joined forces to announce a series of temporary actions to ensure that information continues to flow to investors and to ensure that this supports the continued functioning of the UK’s capital markets. In addition, London Stock Exchange plc has provided some clarification for AIM companies, too.

In this webinar, we will look at how publicly traded companies’ AGMs and financial reporting might be capable of responding to these recent changes, relaxations and comments from government and regulators responding to the pressures which Covid-19 has brought to our world.

Further information on how to manage the impact of coronavirus can also be found on our coronavirus resource hub and you can view past webinars at SHMA®ON DEMAND.

Please do let us know of future topics that you are interested in, or for more information about our webinars please contact us.

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Webinar transcript

(Please note this is auto-generated and un-edited)

0:00
Good afternoon. I'm Catherine moss in the corporate finance team here at Shakespeare Martineau. Welcome to today's webinar on ATMs and financial reporting for publicly traded companies cast in light of the covid-19 pandemic and its impact on businesses.
0:17
You'll see on your screen that you're able to ask questions. So, please do ask them along the way and answer as many as I can and will also share a summary of questions with everyone after the webinar. So what are we looking at today?
0:30
Well on the 26th of March was a coordinated announcement from the FCA the FRC and they pra providing a response on covid-19, which is designed to protect accurate information flow to investors and support the continued functioning of the pays Capital markets both the Elysee and the 8 USC which is formally next providers and clarification to for aim and qse companies around about the same time. So consequently today we'll cover the impact on a GM's accounts financial reporting and disclosure obligations on the 23rd and March 2020. The government implemented a compulsory stay at home measure prohibiting Gatherings of no more than two people.
1:20
Consequently, it's become very difficult to hold a GM's and other forms of company meetings in this situation. We advise companies firstly to check their articles Association and determine what they can and they cannot do if they have any questions, they should speak to their company secretary and also potentially to their legal advisers the two most common positions that we have seen as either that AGM venues are inaccessible.
1:49
People or that companies are not clear about what to do about convening in a GM and what to say in their notices.
1:57
In the first instance, if you're a GM venue is an accessible and you do not have virtual high bid meeting Provisions in your our schools consider postponing adjourning or moving your menu to a more secure venue.
2:13
You should encourage the use of proxies by shareholders and you should seek to ensure a quorum.
2:20
most notably we have found a companies are ensuring that shares are held by a director and employee or a fellow householder in order to ensure the minimum core requirements are met If you haven't yet published your ATM notice and you're about to consider doing so ensure that you include unambiguous language to dissuade attendance at any meeting to encourage shareholders to use their proxies and remind them of the current law and the chairs ability to use powers at common law or within the Articles to prevent their attendance on accounts and financial reporting. There have been a number of measures implemented.
3:03
Which is some of the financial reporting obligations upon companies.
3:09
Firstly companies house have given companies a further three months to file their annual accounts provided that they file the apply for an extension.
3:19
The FCA has granted a temporary moratorium on publishing preliminary financial statements until the 5th of April 20 24 official list companies.
3:30
And many aim companies. We know followed this to this was to enable companies to determine exactly what they wanted to say. And what risks they wanted to highlight furthermore. The FCA has permitted listed companies to delay publication of that orders Daniel Financial reports from four months to six months from the end of their financial year.
3:52
I'm regulation followed suit and will allow on request a three-month extension on publication of audited annual Financial reports with companies with year ends between the 30th September 2019 and June 2020 aqs C has a in addition provided a one-month extension from the 31st of March 2020. The publication of annual audited accounts and is considering further requests where necessary and currents and financial reporting.
4:23
The FRC published information about what they would require within the contents of your and accounts and any reports.
4:31
And said two companies that they should consider additional specific risk disclosures taking into account the company itself and how it might be affected by covid-19.
4:42
Any mitigating steps taken by the board should also be included.
4:48
Further cut more the flcs companies to disclose any judgements and assumptions made by the board which shape the company's outlook for the future.
4:58
You should fully disclosed possible events and scenarios other than those which are the most remote which could lead to corporate failure.
5:06
You should also look at your corporate governance codes and your reporting obligations under those and consider was you need to disclose.
5:16
Finally, you should consider strengthening your regular reporting lines adding internal and external people and lines of report by necessary and finally the FR FCA and the FRC reminded companies of their disclosure obligations under the market abuse regulations.
5:35
Where time of Rapid change and they noted that companies may find themselves in possession of inside information as a company's actual expected performance its Financial condition and or stress or debt repayment are adversely affected in addition your board and we're inside a committee. If you have one should keep this under review and consult your Brokers or financial advisor and legal advisors if in doubt somewhat should be disclosed.
6:04
Aimed to reminded companies that time your disclosure is crucial but should time be needed to ensure an education is fully compliant and then companies Nomad should discuss with aim, whether a temporary suspension of the share price would be needed. Thank you for listening to this webinar. I hope you found it useful and relevant in the current circumstances.
6:25
I would answer a couple of questions now and we'll also send a note of will qas along with the recording of the webinar itself turning now to Since we have been asked whether the government is going to legislate to make it easier to hold virtual shareholder meetings.
6:44
We understand that primary legislation is considered to be needed by the government and this will need to be brought before a parliamentary session with the wrongful trading legislation, which was signed posted once parliament's being recalled.
6:59
The legislation is unlikely however to be retrospective.
7:03
Until then companies need to be carefully advisor what's permitted under the Articles and common law powers in relation to calling and holding meetings if there are any doubts as to what to do aboard should take advice.
7:20
We've also been asked whether directors can withdraw a dividend resolution typically included within an AGM notice if they wish to conserve cash any company May announce that it will not put that resolution to the meeting and thereby not provide a dividend we've been asked whether and why the FCA and al-farsi provided more time to report prelims.
7:43
Effectively here the FCA and I'll see a very keen to ensure effective information floating Market companies need time to determine what effects covid-19 may have on any audit opinions their banking covenants.
7:56
They Capital maintenance and dividend flows financing needs stress test and we're making disclosure to the market they need to do so with as much certainty as they're able to On a cool last week the FRC reminded companies that notwithstanding the pressure which you may be being put upon by your Brokers and your Bankers. You must take the time you need to do the work you need to do to produce the financial results, which you required to disclose. Thank you for all the great questions. I will follow from these after the session and share them with you.
8:32
For further guidance and advice on the coronavirus and its impact on businesses.
8:36
Please contact our dedicated resource Hub at shma.co.uk-- Finally if you would like further information or you'd like to discuss a specific query in more detail than please do of course get in touch.

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COVID-19 | Preserving your business and avoiding insolvency

COVID-19 | Preserving your business and avoiding insolvency

Business survival at the best of times is challenging, but how you react to the current crisis and what actions you take now, can help avoid an insolvency situation.

In this webinar, we will focus on 5 key steps you can take to help your business withstand the effects of the COVID-19 crisis, and how being proactive in restructuring your business and taking available opportunities, can help survival and promote growth for the future.

Further information on how to manage the impact of coronavirus can also be found on our coronavirus resource hub and you can view past webinars at SHMA®ON DEMAND.

Please do let us know of future topics that you are interested in, or for more information about our webinars please contact us.

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Agriculture: diversifying or leasing your land to create habitat banks

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20 Jul

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Webinar transcript

(Please note this is auto-generated and un-edited)

0:00
I'm Shaun Moran a partner in the restructuring and insolvency team here at Shakespeare Martineau. Welcome to today's webinar the latest in our series dealing with the impact of coronavirus on your business. You will see on your screen that you are able to ask questions. So, please do raise these along the way and I can answer as many as I can at the end.
0:22
We are now into the second full month of the government lockdown and the effect upon individuals and businesses has been predictably far-reaching.
0:32
Nevertheless many Business Leaders have come out quickly and publicly to say that the crisis has shown companies to be admirably resilient and was concerns understandably remain about the return from the lockdown many are positive about what they view as The New Normal and how they can protect their business going forward.
0:53
In this presentation, I'm going to provide a brief reminder of directors duties outlined some important changes, which have been introduced as a result of covid before focusing on key issues, which I consider to be crucial to the survival of your business.
1:09
I will conclude with the review of the options directors have available. Should they find that their business is not able to meet the challenges ahead first, then a brief overview of the key duties of a director, which come into focus at this challenging time for business with a warning of the risks faced. If there is a breach of these duties consistent with the entrepreneurial spirit that drove you to create and grow your business is the overriding duty to promote the success of the company for the benefit of its shareholders.
1:42
This puts the company at the Forefront of your priorities and interests faced with the present situation directors must use their skill and care to ensure that their business adapts to the challenge faced and shows resilience in the face of adversity. Now more than ever directors have to consider the overall picture and make tough decisions avoiding wherever possible any conflict of interest this may mean making financial decisions for the benefit of the company.
2:11
employees and other key stakeholders when those decisions may have an adverse effect on the directors personal position where the financially or otherwise should the directors of a company conclude that the business is insolvent or risks going into insolvency the priorities change and the directors must consider the effects and the interests of creditors of the company Above All Else, of course, one of the benefits of incorporating your business is that an owner director is protected personally in relation to the liabilities of that business.
2:47
But that protection May however be lost in the event of insolvency where directors could face personal claims for breach of Duty or to repay unlawful dividends or possibly to reverse transaction seem to be preferences all those conducted to Sun undervalue and occasionally in the most extreme cases. They may face claims for compensation for fraudulent or wrongful trading the government acted quickly to announce some interim relief measures for businesses as well as proposed.
3:17
changes to UK insolvency laws I'm sure that you will all be aware of the pressures faced by the retail sector even before covid hit the devastating effect of the lockdown on business tenant prompted changes under the coronavirus act 2020 which came into force on the 25th of March.
3:37
This legislation provides that a right of re-entry or forfeiture under a business tenancy may not be enforced by reason of non-payment of rent During the period 26th march to 30th June 2020 or such later date as is decided by further legislation.
3:57
This may help tenant cash flow in the short term. Although there will be nothing to stop a landlord from taking action after the relevant period bearing in mind. Of course that many landlords have been adversely affected by the covid outbreak as with other legislation brought in in response to this outbreak. This is not a straightforward waiver of liability for tenants the legislation provides interim protection only and directors of those companies must focus on ensuring their businesses able to observe.
4:26
the terms of the lease other legislation which has been announced but which is not yet in force is intended to give companies time to adapt to the present crisis and provide some breathing space to restructure where possible short of entering into the formal insolvency models that already exist.
4:47
For example company voluntary arrangements and administration a suspension of the wrongful trading Provisions currently for three months from the first of March 20 20 Has received perhaps the most national publicity of the three measures. I'm looking at here.
5:06
You remember the test for wrongful trading where the director knew or ought reasonably to have known that there was no Prospect of the company avoiding going into insolvent liquidation or Administration that director May face liability for a financial contribution to the assets of the company. It is important to remember that as with the suspension of enforcement action in relation to commercial leases. I've just mentioned this is only a temporary measure.
5:36
You should give come for only to essentially honest directors operating in difficult circumstances and not those whose motives are less honorable.
5:47
The other proposed changes in fact originated from the government's 2018 insolvency proposals announced in August of that year.
5:56
These measures are not yet in force. The first is a new moratorium for an initial 28-day period triggered by a court filing. This can be extended to 56 days in order to provide short-term protection for a struggling business. This process will be overseen by a monitor. Although the company would remain under the control of its directors.
6:21
The other change is a restructuring plan, which would operate in a similar way to and alongside existing schemes of arrangement.
6:31
Although the details are not finalized this proposal appears to be a more complex initiative and the wrongful trading suspension and short-term moratorium. I've mentioned unlike those procedures. It looks slightly out of step with the spirit of much of the covid related changes, which focus on temporary relief for businesses hit by the pandemic and it remains to be seen how far this is pushed as a matter of urgency later this year.
6:58
I'm not going to look at five steps you can take to protect and Safeguard your business.
7:04
First your workers the key to most businesses. The lockdown has forced employers to reorganize staff to adapt to a new working environment following the reopening of business premises. There will be an obligation to ensure a safe working environment. So review your workplace needs and consider flexible working where possible or perhaps even shift patterns at all times. Make sure that you communicate regularly.
7:34
Lee and effectively with your staff Secondly make use of the readily available Public Funding. The government has responded to the pandemic with a raft of schemes and assistance. I'm sure you'll be familiar with these by now. They include the small business grant fund the retail hospitality and Leisure Grant fund aimed at protecting a sector particularly badly hit by the outbreak as well as the business Interruption loan scheme. And of course the job retention or furlough scheme.
8:11
The treasury is also making plans to expand this assistance to larger companies and fast growing startups with Russia soon acts saying last week. I want to ensure that no viable business falls through our safety net of support as we protect jobs and the economy.
8:29
I appreciate that many of you may have experienced difficulties in accessing funds this way as the institutions set up to manage the schemes struggle with the weight of claims. This should not deter you if you consider your company qualifies and can benefit from assistance then you should proceed.
8:48
It is however worth remembering that as with all the measures introduced in response to the outbreak the schemes and assistants are intended for businesses. That would be viable were it not for the pandemic the government promotes the support of businesses dealing with covid related issues and this funding should not be seen as a sticking plaster or temporary relief for a business that was struggling before the third key factor to perfect protect the ongoing viability.
9:18
If your business is to focus on finance specifically undertake a continual review of your cash flow and working capital requirements.
9:28
Challenges caused by supply chain disruption or a loss of customers due to the lockdown will affect income and your ability to meet essential outgoings. Therefore. It's fundamental that you take the following steps first prioritize cash collection in the covid era cash is King your customers and clients may find every excuse for refusing or delaying payment but cash is key to the survival of any business.
9:59
Second Monitor and prioritize outgoings treat this as an ongoing emergency and restrict non-essential spending remember though that investment remains key to growth. So it's a careful balance here.
10:17
Third avoid breaching Financial covenants by keeping a close scrutiny on asset values which may affect your balance sheet.
10:26
Fourthly re-review Capital spending for example leases bearing in mind my comments before on agile working and finally under Finance consider options to inject new funds into your business beyond the short-term made. I've just mentioned this will ensure your business remains viable now is the time to communicate with your lender remembering that an open dialogue is always vital to engender confidence in your business.
10:54
The fourth issue that you have to bear in mind in this situation is regular interaction with other key stakeholders. This is vital whether that be landlords or creditors customers and suppliers as mentioned before or indeed. Hm Revenue & customs.
11:15
It's important to seek to negotiate terms with suppliers many of whom will be facing the same situation as your business.
11:22
It's all about working together now to meet the challenges of adapting to a new working environment, of course hmrc can be the most challenging of these stakeholders where you are a struggling business and any concessions that they may now make available in the form of that deferral or time to pay will no doubt be closely monitored against the risk of potential abuse so beware, We've looked at for issues in this part of the presentation people Public Funding Finance generally and communication with key stakeholders the fifth point for any business that expects to prosper following the challenge of covid-19 is to ensure that you have a viable business continuity plan.
12:06
This will deal with the challenges necessitated by reorganizing teams remote working and relationships with other key stakeholders in particular lenders and suppliers.
12:18
When other two men one other matter to mention now, but which is a fundamental importance to any continuity plan is protection for your company against cyber fraud. It's essential to have this in place in order to meet the threats of the pandemic provides for criminals to infiltrate your systems. I conclude today with a look at the options as businesses emerge from the first phase of the outbreak.
12:42
Is your business resilient and able to survive is it back to business as usual somehow? I very much doubt that it may instead be an appropriate time for you to consider a formal restructuring of your business involving perhaps new lending or other options as part of a fresh beginning remember hear what I said about maintaining a regular dialogue with financial stakeholders in your business.
13:08
Alternatively, you may think the ones the dust settles. This is an appropriate time for a sale at the business as the markets recover.
13:16
Will that be a conventional sale and what will that mean for The New Normal or will you be better suited to an accelerated merger and acquisition process working with a specialist turnaround advisor albeit outside of formal insolvency scenario.
13:33
The last option for a business that cannot recover is of course a formal insolvency whether that be a company voluntary Arrangement the appointment of Administrators or liquidation you may be able to take advantage of the proposed 28-day moratorium period under the supervision of a monitor or the restructuring plan both of which I mentioned earlier, but do remember that these Provisions are not yet in place. We will of course keep you updated.
14:02
With any legislative changes so that you remain aware of all potential options for your business.
14:10
Which of these scenarios your company will face will depend upon how strong it was going into the crisis and how you react now applying the five steps. I've outlined today. These have indeed been unprecedented times and we know the ride is far from over. We look forward to working with you as you deal with the exciting challenges ahead. We have had a few questions come in. So I'll answer a couple now and then send a follow-up of the others along with the recording of the webinar.
14:36
First question. Do you think that Rogue businesses will take advantage of the changes you have mentioned to the insolvency legislation, perhaps to the detriment of their creditors.
14:47
Well, I assume here that you're referring to the suspension of the wrongful trading provisions.
14:53
It's important to remember that this and the other proposed measures are not intended to be a get out of jail free card for those zombie businesses, which should proceed into formal insolvency Arrangements rather than trading on to the detriment of creditors. It is only a three-month period at this stage and also even during that period directors could still face liability for fraudulent Trading.
15:19
Or potentially claims for breach of fiduciary duty that I mentioned earlier in the section dealing with directors duties second question.
15:29
Which one of the five key steps you've mentioned do you think is the most important for businesses at this time?
15:37
Well this very much depends on the type of business you have if it is labor intensive, you'll focus on staff perhaps to a greater extent but I think that all five matters are closely intertwined what Arrangements you make for flexible and safe working will impact on your capital outlay and cash flow for the business. You may need funding to promote agile working, but you'll also need to ensure your systems are robust against attack. So really I think it is the case that all five are important.
16:07
And each is in some way dependent on the other. Thank you for participating today in the next of our seminars tomorrow. Jon Heuvel and Tijen Ahmet who will look at the issues of furlough for international employees working in the UK.

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