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ESG Diligence: The Key To Sustainable M&A Transactions
AAB / Blog / Restructuring & Recovering for the Future
BLOG10th Jun 2020
The impact of COVID-19 on the economy is likely to be long lasting. The UK economy contracted by 2% in the first quarter of the year and analysts expect the figure to be worse for the second quarter as lockdown continues. The Scottish and UK government’s COVID-19 financial support measures have been a massive lifeline to businesses, enabling them to continue and providing the opportunity to come out of lockdown with hope for the future. Even with this support, however, many businesses will struggle to survive and there are a number of matters and options that these businesses should be considering when it comes to restructuring and recovering.
Directors’ duties
It is important to be fully aware of your directors’ duties and obligations. If it looks like your business may struggle to meet its liabilities as they fall due then you have a duty to act in the best interests of the creditors.
The Government announced a temporary relaxation of wrongful trading laws from 1 March 2020 as part of their COVID-19 support measures. This was designed to allow directors to take advantage of the various loan schemes available despite the severe and immediate impact of lockdown on cashflow.
However, you still are obliged to minimise any potential losses to your creditors and treat them all equally and wrongful trading rules will apply if your Company was potentially insolvent prior to 1 March. To protect yourself and reduce the risk of any personal liability, you should seek professional advice as early as possible.
Creditor action
Whilst our experience is that most creditors are not taking recovery action currently, creditor action will recommence as courts begin to fully reopen because cash will be needed to fund and sustain their resumption plans.
We recommend that you review your liabilities and identify any that may prove troublesome. It is an ideal opportunity to communicate with major creditors now and see what can be agreed to help ease any pressure.
Business Rescue Options
Unfortunately, this crisis will prove terminal for some companies, but there are plenty of rescue options available for struggling, but viable, businesses that need a helping hand to adjust to the “new normal” post–lockdown. These include:
The key is to get professional advice from an insolvency practitioner as early as possible. The quicker any rescue measures are implemented the more effective they are likely to be, leaving you ready and able to deal with the challenges ahead.
By Duncan Raggett, Insolvency Practitioner and Head of Restructuring & Recovery.
Find out more about our dedicated Restructuring & Recovery team.
How AAB can help you with
If you or your business are experiencing financial difficulties, we can advise on your best course of action and options available, including your duties as a Director and whether a rescue is possible for your business. Not all our work involves distressed situations; we have extensive experience with Members' Voluntary Liquidations (MVLs) and strike-offs and will work with our corporate and personal tax teams, to advise on the most tax-efficient route for the beneficiaries.
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