Webinar

COVID-19 | Minimising financial risk to business

COVID-19 | Minimising financial risk to business

The coronavirus outbreak has increased pressures on businesses already struggling with uncertainties over Brexit, global trade and growth concerns. Companies in all sectors are likely to suffer negative financial effects on first-quarter revenues with airlines, as well as businesses in the travel and leisure sphere particularly affected. Business owners and directors should be aware of the variation to their duties at times of financial distress, specifically taking account of creditors’ interests and should take early advice from insolvency and restructuring specialists. We will look at the key steps businesses can take to reduce financial risk.

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)

1:30
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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Webinar

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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Webinar

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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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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