Restructuring and insolvency issues are rarely out of the news at the moment, with a range of businesses seeking to adapt to the challenges of a post-COVID-19 world. You might have seen stories about struggling businesses going into administration or liquidation, or securing a company voluntary arrangement (CVA).

You may be concerned about what's down the line, but there are things you can do and be aware of now, to help look after the future of your business. Here are seven key insights to help – including paying attention to directors' duties, and why restructuring or becoming insolvent does not necessarily spell 'the end'.

  • Cash is king - have clear procedures and processes in place that maximise cash returns. Have a good cash flow forecast and continually review this to ensure you're hitting your targets. If not, ask yourself why and consider what actions you can take to improve the situation.
  • Keep good records - they have value beyond assisting in the management of the business - and can be invaluable in a restructuring or insolvency situation. Maintain regular management accounts that accurately reflect how your business is performing; hold regular board meetings at which these can be discussed. Ensure you have people that can interpret these accounts and advise how to improve figures. With the benefit of quality oversight and records, you should be able to identify any clouds on the horizon.
  • Take advice early - people often assume that bringing in insolvency practitioners or seeking restructuring and insolvency advice should only be done once you are past the point of no return. That is not the case. Instead, act at the first sign of problems. That way you can obtain a professional and independent analysis of your business, with options on how you might be able to improve matters. Seeking advice before serious problems arise can often avoid or mitigate risks to you and your business. This is particularly important at present, given recent changes to the law that impact on companies' obligations as both creditors and debtors, and the duties of directors.
  • Know your duties as a director - if you run a company going through financial difficulties, you must have a clear understanding of what your legal obligations are. These will inform what actions you can - and can't - take. A wrong decision can result in personal liability for directors - and with the law in this area having changed twice already this year - this is a subject all directors should be fully informed on.
  • Restructuring or insolvency does not have to be 'the end' - often, they can be used to save all, or part of, a distressed business. In addition to pre-existing restructuring options like administration, there are also new permanent and temporary measures introduced by the Scottish and UK Governments that can help. For example, you can now obtain a moratorium – akin to 'breathing space' - to protect your business from creditor action while you consider your options and take advice.
  • Debtor rights - insolvency is also not the end of the story from a debtor perspective. If a customer owes you a debt but has entered an insolvency process, there is still the possibility of recovery. Engage with their insolvency practitioner – and make sure you submit a claim, so that if there is any recovery, you will benefit from this. It might be that a CVA has been proposed, which enables the customer to pay back debts while still operating. If that is the case, you need to understand what is being proposed and whether this is the best option for you.
  • Orderly wind down - if a business cannot continue, an insolvency solution still provides a controlled and orderly way to shut down its affairs. It provides directors with comfort that they are acting lawfully and responsibly, enables staff who cannot be paid by other means to receive sums from government funds, and provides the best possible return for creditors.

Contributors

Lucy McCann

Partner

Andrew Scott

Senior Associate