What directors need to consider following lockdown 3.0


07-01-2021

There are few businesses that have not been adversely affected by the pandemic, which has resulted in previously well run, profitable and solvent businesses facing an uncertain future, largely through no fault of their own.

The position has become even starker given that the Country is now a third lockdown, with restrictions in some form or another likely to be in place until Easter. Let’s also not forget about the impact of Brexit, albeit that much of the uncertainty occasioned by that has been resolved to some extent by the EU-UK trade deal.

In response to the Chancellor’s announcement regarding further financial support for businesses, UKHospitality Chief Executive, Kate Nicholls, said that 

“while this announcement is most welcome, make no mistake that this is only a sticking plaster for immediate ills – it is not enough to even cover the costs of many businesses and certainly will not underpin longer-term business viability for our sector.”

There have been renewed calls to the Chancellor by trade bodies and business owners, both large and small, to extend the measures currently in place such as the furlough scheme, the business rates holiday, the moratorium on the eviction of commercial tenants and cash grants and loans for businesses. The very real concern is that if these measures are not extended and enhanced and indeed new measures introduced, such as for example a cut in VAT for the hospitality sector from 20% to 5%, then many businesses will not be able survive through till spring, let alone till the end of 2021.

The upshot is that many business’ will now need to start thinking about restructuring and also, unfortunately, about making redundancies. Although the furlough scheme has been extended to the end of March 2021 (at least), unlike before furlough cannot now be used to pay notice (not by way of payment in lieu of notice but keeping on the employee on furlough during their period notice). That in itself can be a significant cost to the business and where they cannot afford to meet their obligations for notice pay and statutory redundancy payments it is essential that directors take a realistic look at the short to medium term viability of their business and seek specialist restructuring advice.

This does not necessarily need to be seen as a negative step but one which may well protect your business and is one which many established names have taken. A formal restructuring or insolvency process may not, on review, be required and a solution can often be achieved by considering finance options and/or negotiating terms with key creditors and stakeholders.

More formal insolvency procedures include creditor voluntary arrangements or one of the new restructuring tools introduced by the Corporate Insolvency and Governance Act 2020, most notable of which are the moratorium provisions which enable a Company to get protection from its creditors for a designated period of time. As a last resort, it may be necessary to consider administration or liquidation.

It is imperative that directors, and indeed all business owners, consider their positions carefully and obtain advice not only on the restructuring options available to them, but also on their obligations to creditors and the consequences of failing to comply with those obligations, which can be stark if the company is arguably insolvent. Once this occurs, the interests of creditors become paramount and failing to recognise this can become costly in terms of actions brought against directors personally. 

Please contact William Shirley or a member of our Leisure and Tourism team if you would like any further information.

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