Many firms have experienced, or will experience, severe financial difficulties during the ongoing pandemic. It is a uniquely challenging environment, where false steps can seriously undermine performance. But a similar pandemic could also occur in the future, so it’s vital you get expert advice.
With reduced or no trading, many businesses are experiencing severe cash flow difficulties. While there are numerous Government support and funding options to help, unfortunately this is not always enough. Some businesses will require restructuring, re-financing or debt forgiveness to survive while others, unfortunately, will not survive.
In the current environment, solvency is a major concern for business owners.
Turning things around is key and a first priority is to quickly stabilise cash and liquidity and take a realistic view of current options.
This means identifying and acting on opportunities for strategic, operational, organisational and financial change. Establish solid ground for a turnaround by assessing your liquidity position and creating a stakeholder management plan.
To succeed you need to quickly and effectively assess your options; steady the business and assess its financial position; calculate financial paybacks of various options; ensure full delivery of the turnaround plan and understand the risks and costs of each option, including contingency plans.
By understanding the needs of borrowers, lenders and shareholders, and managing stakeholder communications, you can stay on top of issues and make informed decisions. You should assess short-term liquidity requirements and find ways to quickly preserve value and address potential risks to stability.
If your business has become distressed due to COVID-19, your next step should be to assess the situation and develop a practical insolvency plan.
Working with your advisors and stakeholders, identify the path to maximize available value. Assess the impact and risks of various options, identify the right filing jurisdiction and prepare a detailed insolvency plan that optimizes stakeholder positions.
The viability of your business, and whether sufficient future cash flow will be available to formulate a restructuring plan, will determine your business rescue and recovery options.
Currently, there are three potential options. These are:
Company Voluntary Arrangement (CVA) — The company enters into a formal insolvency process leading to a restructure. There is a legally binding agreement with creditors and a settlement is agreed with unsecured creditors. The company remains in the control of the directors but trades under the supervision of a Licensed Insolvency Practitioner for the duration of the CVA.
Company Administration — The company enters into Administration and is protected for a period of time during which an Administrator formulates a business recovery plan. The company is under the control of a Licensed Insolvency Practitioner when it enters into Administration.
Rescue options available through the Administration process include Pre-Pack Administration, sale of all or part of the business, or, eventually, a CVA. In the current COVID-19 climate, ‘light touch’ Administration protocols have been developed giving directors greater input into the formulation of a restructuring plan.
Informal Restructuring — A business can restructure informally without the need for a formal procedure. Usually, this involves utilising emergency funding such as Government-backed loans and/or entering into informal arrangements with creditors such as a Time to Pay Arrangement with HMRC.
Where a business cannot be restructured and rescued, it is likely to face liquidation. For help and advice with related matters, please get in touch with our expert insolvency team today.