How can I protect my business during this period?
This is an unsettling time for all businesses, but we outline some measures you can take to help protect your business below.
- Make sure you continue to communicate with customers and clients – try to understand their plans during this difficult time.
- Let customers / clients know how they can contact you.
- Review major items of expenditure and ask whether expenditure is necessary or could be delayed.
- Consider whether capital expenditure should be put on hold.
- Many firms are looking at recruitment freezes or asking staff to reduce hours (this was done successfully in the 2008/9 financial crisis).
- If you have business interruption cover with an infectious disease cause built into your insurance suite of documents, this may help in certain circumstances.
- Explore whether you can make a claim on your insurance.
- Credit insurance may pay if you suffer a bad debt but this will usually require a customer / client to enter into a formal insolvency procedure.
- If you are considering staff rationalisation please take advice as the cost of getting this wrong can be considerable and is normally avoidable by following proper procedure.
Offering credit to your clients?
- Be careful about the level of credit that you extend to customers / clients and, if at all possible, either get payment in advance or on delivery.
- You may choose to seek personal guarantees from the directors of customer / client companies but be aware that, if these are freely given, it could be because the director has few personal assets to lose. However, any additional security is helpful.
- Review the basis on which you supply goods to make sure that any retention of title clause you may have in your terms and conditions is valid. You need to follow the right steps in terms of documentation and procedure so that in the event that you have to rely on the terms that you can prove that these terms were communicated to the customer/client in advance of the supply, and that you can identify the goods.
- In the event that you need to rely on a retention of title clause (generally because your customer has gone bust) you must alert the insolvency practitioner dealing with the customer at the earliest opportunity and insist on identifying the goods that you supplied.
If my business fails how can I protect my family?
- If you operate through a limited company and your company fails you will not be asked to put in additional funds unless you have either signed a personal guarantee or your conduct as a director has fallen short of what can reasonably be expected.
- It is not illegal to be a director of an insolvent company but the directors do open themselves up to potential pitfalls if they do not manage the risk appropriately.
- When a business tips into a position where it may fail, the directors’ focus should change from that of creating shareholder wealth to protecting the position for creditors.
- The main areas of risk that directors face on the failure of an entity are claims for:
- Wrongful trading – essentially trading beyond the point of no return and making matters worse.
- Intentionally preferring one creditor to another.
- Selling off assets at an undervalue.
- Fraudulent trading – for example; trading and taking money with no intention of supplying the goods or services.
- Misfeasance – essentially acting in bad faith as a director of the company
- Taking advice from an Insolvency practitioner can protect you from the perils of claims against directors (and possible disqualification) but you must take this advice early and follow the advice given.
Our Restructuring and Transformation team are on hand to support you during this time. Please get in touch with the author, your usual Kreston Reeves contact, or complete the enquiry form to speak to one of our experts.
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