Helping your clients – concerns over solvency

We are sure that you are being bombarded by ‘Coronavirus’ information, but as a professional advisor you are likely to be approached by clients with concerns over solvency.

Rather than repeat what is being broadcast on a technical level, we thought you may be interested in what is happening locally on the ground.

As a firm we introduced ‘work from home plans’ in advance of the lockdown, so we remain fully operational.

Although many businesses have been forced to close their doors, we have not seen a massive avalanche in insolvency appointments.

What we are seeing:

  1. Large scale potential use of the Furlough Scheme, with a mix of full pay and 80% pay envisaged.
  2. Short term forbearance by creditors, including landlords and suppliers. The current alternative to forbearance is what? The courts have ground to a halt, whilst it is possible to obtain an undefended county court judgement, enforcement is another matter and to what end? Forcing a company out of business is unlikely to result in payment and there will not be a queue of new customers to replace those put out of business. This may change rapidly once the restrictions are loosened.
  3. Where we are commencing insolvency processes there are two key drivers:
  • Reshaping the business. In a post corona virus world, for some, the way in which business will be conducted will change. Some businesses are taking early action to shed loss making parts to be able to put their resources, both working capital and time and energy into those parts of the business most likely to provide a return.
  • Use of ‘Soft touch’ administration to protect the business. The administration process is coming into its own as a way to ‘moth ball’ a company pending better times. Administration protects a company from creditors for up to a year, staff can be furloughed whilst the company is in administration and the exit route out of administration can be a return to solvency, either through future profitability or the compromising of liabilities, through a tool such as a company voluntary arrangement.

Whilst some businesses will inevitably fail as a result of the rapid change in market conditions, the opportunity to use administration as a protective and productive ‘business rescue’ tool keeping companies alive and returning them back to the directors and owners, once the market improves, has never been greater.

This is an opportunity for the insolvency profession to step up and do what it says it does, by supporting real ‘business recovery’.

Once the lockdown restrictions are eased, we envisage a ‘cashflow crunch’ as the greatest risk, with the flow of money in the system being the greatest challenge. We cannot pay A until B pays us and B will not pay us until C pays etc.

Directors have the opportunity to protect their businesses during the crisis, anticipate the potential cashflow crunch, and those that take proactive steps to use every tool at their disposal are most likely to succeed.

If any of your clients would like to find out more, we are happy to discuss the options in more detail on a no obligation basis, and we can be contacted on our usual office number or direct line numbers.

With kind regards and best wishes

The Portland ‘Business Recovery’ Team

concerns over solvency