The Covid 19 crisis has been hard for many businesses around the country. It is even more important as directors to ensure proper management of a company and record properly decisions that are made. Otherwise personal liability could follow.
As a director of a company during the COVID-19 crisis, whether your company is generally healthy or whether it is experiencing difficulties, you are likely to face a degree of uncertainty in managing your company during these unpredictable times.
Decisions taken during this time may be particularly difficult, because in these unprecedented times it is hard to predict even the near future, and accurately say whether a decision made now might have a negative impact on your company further down the line.
The situation can rapidly change from being a solvent successful company, to experiencing significant financial difficulties. These may be nothing to do with your business model, but can be a reflection of the difficulties faced by other businesses, such as suppliers and customers, that you are used to dealing with, who stop being able to meet their obligations to you. This cashflow problem therefore has a knock-on effect.
Despite the fact that these are particularly uncertain times, or maybe because of it, directors’ standard duties remain of paramount importance at this time. Directors should bear in mind their duties to the company and to creditors in the day to day decisions they make.
Now more than ever, directors will need to keep a very close eye on the company’s financial situation. This means
- making sure that accurate up to date profit and loss and balance sheets are maintained; and
- that all directors are fully aware of the financial situation of the company at all times.
It is imperative that directors become aware of any changes from solvency to potential insolvency, and adjust their decision-making priorities accordingly. Read more useful information in our web pages on directors duties & personal risks and what decisions a director can make.
Changes to insolvency legislation as a result of the Covid-19 crisis
Measures announced by the Chancellor of the Exchequer on 28 March 2020 for changes to insolvency legislation provide some small comfort to directors. For more detail on the changes, read more in our other pages about Covid 19.
One of the measures that was brought was the temporary suspension of wrongful trading provisions as from 1 March 2020, so that company directors could keep their businesses going without the threat of personal liability for trading when they knew or ought to have known that their company was insolvent. This suspension applied retrospectively from 1 March 2020 to encourage directors to carry on in businesses without the threat of personal liability. This most likely took some pressure off directors, but it should be borne in mind that the change only applied to wrongful trading, and no other provisions of the insolvency legislation.
What should I be doing to protect the directors and the company at this time?
- ensure up to date management accounts are maintained and available to all directors;
- hold regular board meetings (virtually) so that all directors can discuss concerns and make decisions based on up to date information. This may mean daily meetings for a while;
- keep a firm grip on your credit control and debt management functions. It is important that you are aware if debtors are stalling, so that you can take early action to keep cash-flow under control;
- keep full records of all decisions and the reasons behind them. Include as much detail as possible so that if needed in the future, you can explain why certain decisions were made;
- maintain lines of communication with your suppliers and creditors, including landlords and your financiers, so that you are taking the correct and responsible action with regard to all of these parties during this crisis;
- if necessary, take expert advice on decisions to be taken. Make sure that this advice is detailed in board minutes and retained in the books and records. For example, take advice from a business rescue expert, or a company lawyer or an accountant on the best way of moving forward during these unusual circumstances.
If you have any concerns on your responsibilities as a business owner or director, particularly during these difficult times, then contact our expert team at Francis Wilks & Jones who can talk through the issues with you. We have many years of experience of working with directors and companies regarding their corporate responsibilities as well as looking at options for improving cashflow and company turnaround. We can help, just get in touch.