With the economy moving out of lockdown R3 (the Association of Business Recovery Professionals) have published guidance to help company directors see what options are available to move forward.
The guide encourages seeking professional qualified support at an early stage.
Our director, Christine Convy, chartered accountant and licensed insolvency practitioner endorses the guide supporting the recommendation of taking early action. The earlier matters are addressed the more options are available to pursue. This is particularly relevant for the effectiveness of informal negotiations and informal solutions. Christine always advises business owners to treat a formal insolvency solution as a last resort. Some key points from the guide are highlighted below.
It is acknowledged the pandemic may have pushed some businesses to the edge of viability.
There is no shame in this as no one could have predicted the length of time this economic crisis has lasted.
It is highlighted that business owners can be at risk of taking advice from disreputable individuals and groups seeking to take advantage of companies in difficulty.
We believe many stakeholders will continue to provide a lot more latitude, particularly where there are defaults in payments or settlement of obligations. Having the right advisors will provide added comfort to your stakeholders. Where there is a viable trade and competent team there is always hope of a business turnaround.
The guide refers to procedures related to England and Wales.
The Common signs of financial distress including failure to pay tax debts and pension deductions, cancelling staff bonuses, lack of investment, lack of funds for director remuneration, increased stock levels, increased stress, projects taking longer, loss of key customer(s), increased bad debts, calling up of loans and business structure issues are relevant regardless of location.
Informal Options including debt refinancing, debt consolidation, factoring and invoice discounting, venture capital funding, personal loans, funds for equity, sale of part or all of the business or assets, time to pay are all explained as possible solutions that can avoid formal insolvency. These options are not exclusive to business in England and Wales.
Formal Options/statutory insolvency arrangements make reference to the Insolvency Act 1986 which is also relevant to Scottish business under the Scottish rules.
The formal options available include the new moratorium process, Scheme of Arrangement and restructuring plans as well as the formal insolvency appointments of company Administration, Liquidation and Company Voluntary Arrangements can all be undertaken in Scotland.
The guide usefully sets out a reminder of director obligations incorporating the seven main duties required by law –
Act within powers
Promote the success of the company
Exercise independent judgement
Exercise reasonable care, skill and diligence
Avoid conflicts of interest
Not accept benefits from third parties
Declare interests in proposed transactions or arrangements
It is often difficult in owner-managed businesses for the directors to split their director role from their shareholder interest. When facing financial distress there is an overriding requirement for directors to concentrate their priorities on protecting creditor interests above shareholder interests whilst mindful of their overall responsibilities.
Whilst the guide gives an overview of the myriad of options and considerations, each business will have its own level of distress and various stakeholder elements. A good advisor will work with directors to understand the business and its unique elements to help the directors consider various options and make informed decisions.
Directors are under more scrutiny now in our litigious society and can face a personal challenge for wrongdoing including any challengeable actions undertaken by fellow directors. Having the right advisors on Board to navigate through difficult times is paramount to enable the right solutions to be put in place.
The full guide is available at: www.backtobusinessuk.com
For more bespoke advice suited to your business affairs particularly in the context of Scottish business speak to our qualified team at Dunedin Advisory. Initial consultations are free of charge.
Contact us at Dunedin Advisory in confidence by email – firstname.lastname@example.org or call: 01592 630085 and ask for one of our specialists to call you back.