This is an unprecedented time for businesses in Northern Ireland.
We appreciate that, for many Directors, your first thoughts will be immediate decisions regarding employees, continuation of trade, and the health and wellbeing of your employees and families.
To assist with decision making at this difficult time, we have summarised below the factors that you should be considering to ensure that you act in line with your duties.
The Government has announced measures to support businesses as they navigate the national emergency that is Covid-19. We have included the link below to Grant Thornton’s summary of these measures, as they apply to Northern Ireland.
You should be reviewing the measures that are appropriate to your business and seeking to maximise the support available.
Lender(s) and other key stakeholders
Early communication with lenders and other key stakeholders is essential. Be open, honest and realistic with them. Produce a cash flow forecast with realistic assumptions and present this to your lenders to consider how your peak funding requirement will be met.
As you will be aware, being overly ambitious with your cash flow assumptions will result in your business not having appropriate working capital facilities in place when this is required.
Given the current cash flow challenges facing businesses, many businesses could be, or could become, cash flow insolvent.
If your company becomes insolvent, your attention must shift away from the shareholders towards protecting the interests of creditors. In this scenario, you must ‘take every step to minimise losses to creditors’. The tests of insolvency are summarised below:
- Balance sheet insolvent (liabilities are in excess of assets);
- Cash flow insolvent (cannot pay debts as they fall due); or
- Outstanding demand for payment.
As Directors, you are generally not personally liable for a company's debts and losses (unless you have given personal guarantees / indemnities). It is when a Director acts improperly, negligently or in breach of his / her duties, that the risk of personal liability arises.
In order to reduce the likelihood of being seen to act improperly (and to reduce the likelihood that you will become personally liable for a company's debts and losses), you should:
- produce a cash flow forecast with prudent assumptions;
- communicate regularly with your lender(s) and other key stakeholders;
- maximise the governmental support available to your business;
- seek professional advice – discuss your plan and what actions you are proposing to take with your solicitor and accountant;
- hold regular board meetings and keep detailed minutes;
- document business critical decisions;
- consider carefully the need to incur any new liability or debt before doing so; and
- ensure customer deposits/ client funds are held in separate trust accounts.
The above list is, of course, not exhaustive and you will need to take steps that are appropriate in the context of your business. If you have concerns, queries or wish to discuss any of this information, please contact one of our specialists below.