A question I have been asked many times since March 2020 is, “I am a director and I am unable to operate my business, what should I do?”
As a director, you should always be aware of the financial position of your company. It is surprising how many directors are not, and in my experience, this is something that often creates anxiety. Understanding the financial situation and preparing a business plan will provide clarity on what can and cannot be achieved, and how to address the difficulties and focus on positive changes.
It is likely that the plan will often need to be adapted. However, when the objectives are in black and white and the correct financial position is known, it is easy to make changes, and doing this will ensure compliance with your duties as a director. A change of plans doesn’t matter, it is the thought process and reasons for change that are important.
Where do I start?
The business plan does not have to be massively detailed to start with – just put pen to paper. My suggestions are:
- Write down the company’s assets and liabilities.
- If you are balance sheet insolvent, hold regular board meetings and record the decisions taken to justify any action or inaction to comply with your duties as a director. This will help to avoid personal liability if at a later date the company enters into an insolvency process.
- Prepare a cash flow forecast. This is tricky if you are unable to operate your business at the moment, but with the current information we have from the Government, consider when you will likely be permitted to trade again.
- Consider whether recent case law on business interruption insurance policies provides you the ability to claim through your insurance policy.
- Look carefully at the list of creditors and write down when each payment is due.
- If you have secured creditors and payment to these creditors is overdue, remedying this should be prioritised.
- Remember that after 31 March 2021, the temporary restriction on presenting winding up petitions is likely to end. It may be that the first period of your business plan is up to this date. Note that this date may be extended, but at the moment, it is advisable to assume that creditors can petition after this date.
- It seems likely that the Government is going to keep in place social distancing measures for some time, so you may want to prepare a business plan for different stages. Perhaps covering a period of every 3 months after 31 March 2021 to include projected income for a phased reopening.
- Consider how you plan to make the payments. Look at different types of funding and talk with creditors to reach an agreement to pay.
As you work through the business plan, it will highlight where specialist advice is required, and therefore who you should speak to. In summary, my advice is to put pen to paper, and take advice where necessary. Let’s figure out a plan, which is indeed possible even in these uncertain times.
To start your Recovery Business Plan, please click here, then scroll down to “You can simply download the One Page Plan template here.”
If you would like to discuss the above information, or have any questions regarding Corporate Restructuring and Insolvency, please contact Suzanne Jones on [email protected] or 020 7725 8019.