Directors' duties for UK businesses amid COVID-19
COVID-19 is taking its toll on UK businesses and their finances.
Business owners and leaders are having to quickly implement their contingency plans or put them together quickly (if they don’t have them). So, based on the experience of our restructuring team guiding businesses through tough times (and acknowledging the current situation is unprecedented) below are our key tips for navigating your way through this storm:
- Don’t stick your head in the sand & don’t panic – focus. Forecasting and planning is key – but be realistic and pragmatic, and accept that your plans & projections will need to flex and change quickly as the situation develops (there’s no such thing as an off the shelf ‘one size fits all’ here).
- Realistic financial cash flow forecasts are pivotal to effective planning. You need to review, monitor and adapt them regularly as the situation changes – weekly at least, probably daily (month by month is too much of a gap in the current situation). Don’t just shut your eyes and hope.
- Cash really is king at present – pro-actively monitor your cash flow. Chase and collect your debts.
- Engage with key suppliers, key customers, banks, lenders, investors and creditors asap if you need to (or think you may need to) renegotiate terms, extend credit or facilities. Do remember that others in your supply chain may be facing the same challenges – now isn’t the time to try and get one over on them. Now is the time to work in partnership. Don’t expect the tax man to let you off your taxes (the government still needs to fund the state – and the NHS!).
- Review the government measures being rolled out to help businesses through this time, and keep up to date on it. Check if any government grants, reliefs or funds can claim. If you can, then claim them. Accept the help available, don’t be too proud to take it.
- Follow government and professional guidance on dealing with employees and keeping them safe and functioning as best they can – they’re likely to be your most important asset. Having to replace them will likely cost you more long term. Listen to and consider advice, and accept that just because you didn’t do it that way before doesn’t mean you shouldn’t this time. Nobody knows everything. This also helps absence through sickness and potential future employment claims.
- Review your terms and conditions. Can you get out of any contracts that may now be problematic early (can your customers?); what are your liabilities if you need to terminate early (or they less than weathering ongoing costs on unprofitable contracts); could you tighten or renegotiate more favourable payment terms, reduce / extend credit terms or cap liabilities?
- Remember your director’s duties. When a company faces financial difficulty, a director’s duty is to consider how their decisions impact creditors and the value of the company assets if it can’t trade its way out - to act in the best interest of creditors as a whole. Don’t let shareholders and investors wanting to extract cash quickly for themselves detract you from that and expose you to potential personal liability. See our previous articles on this by clicking here.
- If your forecasts show an irretrievable situation is more likely than not, then consider whether to pre-emptively restructure; whether administration is appropriate to give you some breathing space; or whether it’s terminal – and time to shut the doors before it gets worse.
The situation is fast moving, and the circumstances of each individual business will differ. The above tips are a starting point for consideration – by no means a comprehensive guide (far from it). This time is challenging, and businesses owners and leaders will need an honest and pragmatic team on their side with them. We can help you with that.
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If your business needs legal support with any issues arising from COVID-19, please get in touch with Frank Bouette.
All information in this document is accurate at the time of writing. It is meant for general information only and is not legal advice.