Although the position in the UK is changing rapidly, directors should think seriously about how they might mitigate the risks associated with the inevitable business disruption in the coming weeks and months.
Preparations are being made throughout the country to mitigate any potential losses caused by disease-related disruption such as the implementation of flexible working strategies to ensure continuity of trading and productivity. As well as some of the measures introduced by the Government in the March budget, such as access to Government backed loans and reduction of business rates, in each daily briefing given by the Government new and improved proposals for businesses are being introduced. These measures, however, will not be suitable for all businesses. Remote working, for example, will be of limited use to the many sectors which rely on staff being physically present to serve customers, manufacture products or provide services.
Business owners are, understandably, increasingly concerned about the impact that Covid-19 could have on solvency and their business' continued ability to trade. The entry into administration of airline company Flybe in late February, is a timely and high profile reminder of how the sudden onset of an unexpected event, such as this large scale outbreak can be the final straw. Which leaves a business, albeit one which was already in a fairly precarious position, with little option but to enter formal insolvency.
It is therefore important for business owners and directors to be aware of their obligations and duties in these trying times, as well as being aware of the options they may have available to them if things do go wrong.
Whilst directors of a company have a variety of fiduciary duties as set out in the Companies Act 2006, in times of financial distress, those same directors have a further duty to shift their focus to ensure that they act in the best interests of the company's creditors.
By ensuring they act in the interests of creditors and by avoiding committing Insolvency Act offences, such as wrongful trading, fraudulent trading, transactions at an undervalue or preferences. Transactions defrauding creditors or misfeasance, directors can avoid personal liability in connection with a later failure of the company.
It is therefore sensible for directors of even seemingly stable companies to take stock in light of the Covid-19 crisis. In order to help we have set out some of our top tips below:
Don’t bury your dead in the sand - ignoring a financial problem seldom means that it disappears. The sooner you act the more options you may have available to you and the quicker you can protect the company's creditors, the business and yourself.