COVID-19: Keeping one step ahead

Practical advice for businesses and individuals

We are in uncharted territory with the UK Government’s latest social-distancing and lock-down measures, both of which continue to have an impact on the economy and businesses throughout the UK and globally.

We understand that these will be extremely difficult and challenging times for many businesses.

In particular, directors have a difficult task ahead of them to ensure that their businesses can keep on trading with the lock-down measures in place, and to deal with the virtual and technological obstacles this is likely to place on those businesses that have not already adapted to remote working.

In addition, directors need to manage the mental well-being and livelihood of their employees and, most importantly, ensure that their businesses can remain viable at the end of this crisis.

To address some of your concerns, we set out some key tips and guidance for directors trading through these difficult times:

Contingency planning

It is essential that businesses review their current operational and financial management information and prepare up-to-date (revised) cash flow forecasts and budgets. Directors need to have a clear and up-to-date understanding of the company’s position (and in particular its financial state), and where appropriate that of the wider group. Most importantly, this will also enable your business to be well-prepared for any funding requirements.

Most businesses will now be aware of the Government’s Covid-19 financial support measures (details of which can be found on the Government website Government Covid-19 Guidance) but there are also other options available to companies including turnaround specialists that provide funding in distressed situations and may be able to fund short term losses of businesses in the right circumstances.

Leasehold premises

For many, the next quarter rent payment date on their leasehold premises falls due today on 25 March 2020.

We have already seen many retailers closing their stores and commercial retailers seeking to withhold rents in order to conserve cash. Many landlords will need to compromise in order to ensure their premises remain lettable. However, this problem does not just rest with retailers as many other businesses (including our own) have had to adapt to remote working during this crisis. It is important for businesses to liaise with their landlords at the earliest possible opportunity in this regard.

On 18 March 2020, the Ministry of Housing, Communities & Local Government published a press release: Complete ban on evictions & protection for social or private renters. This includes measures to suspend new evictions from social or private rented accommodation while this national emergency is taking place and no new possession proceedings through applications to the court to start during the crisis.

On 23 March 2020, this has now been extended for commercial tenants. This includes similar measures to protect businesses during the coronavirus pandemic and provides that commercial tenants who cannot pay rent will be protected from eviction for three months.

In addition, the Government has announced a 12-month business rates holiday for retail, hospitality, leisure and nursery businesses in England for the 2020/21 tax year.

The Coronavirus Bill (setting out the above measures) has now passed all stages through the House of Commons and is expected to become law tonight (25 March 2020) before MPs break for Easter recess.

Customers

Be careful about the level of credit you extend to customers/clients & review the basis upon which you supply goods to customers including, specifically, the strength of your retention of title clauses (or insertion of such clauses if they do not already exist). This will enable you to improve your position in the event your customer enters into difficulties or an insolvency process.

Look for insolvency warning signs

Whilst these may seem obvious some common warning signs are all too often ignored. By way of example, these can include: a sudden change in employees or management structure, suppliers seeking more credit terms or erratic payments or partial payments of debts. You should regularly keep checks on the payment profile of your customers and act quickly where possible. Various public sources can provide further information on a company’s financial position including the London Gazette (which publishes all public notices relating to corporate and personal insolvency in England and Wales) and Companies House (for accounting and directorship information as well as registration of new security).

Directors’ duties

Whilst a company is trading solvently, the directors owe their duties to the company for the benefit of present and future shareholders. However, when a company is insolvent or near insolvent, directors are required to have regard to the interests of creditors to whom they owe a duty of care in order to minimise any loss to creditors. In certain circumstances, the Insolvency Act 1986 renders a director personally liable to contribute to the company’s assets if the company goes into insolvent liquidation or administration.

Take professional advice

If directors have any doubt about the financial viability of their company they should seek independent professional advice without delay. In addition, it is important that they are kept fully informed of the affairs of the company and all material decisions should be recorded together with the expressed views of individual directors if there is any disagreement.

If appropriate, such advice will include advice as to a restructuring mechanism, which will be most suitable in the circumstances.

The 20 strong Corporate Restructuring & Insolvency team at Charles Russell Speechlys are fully operational and happy to take calls, even if just as a sounding board. We are dedicated to working with you on how best to preserve, rescue and turnaround your businesses during this difficult time. Please feel free to contact any one of us for further information or if you have any questions.