Whilst the government is currently offering help by way of grants and loans, some businesses are finding this is not enough to help them survive during the Covid-19 pandemic.
Directors of companies in financial difficulty face a number of issues, which often interlock. As soon as directors are aware that a company is in financial difficulty, they should seek external advice.
As a director of a company that is struggling, you may wish to consider the below (this is not an exhaustive list):
Be are aware of your duties Your duties as a director can be found at sections 171 – 177 of the Companies Act 2006.
The seven general duties are:
1. To act within powers.
2. To promote the success of the company.
3. To exercise independent judgment.
4. To exercise reasonable care, skill and diligence.
5. To avoid conflicts of interest.
6. Not to accept benefits from third parties.
7. To declare an interest in a proposed transaction or arrangement.
Check for any personal guarantees The directors of a company are generally not personally liable for the debts of a company. However, if a director has given a guarantee for the liabilities of the company, the director may be personally liable under the guarantee. Be aware of how many personal guarantees are in place and the limit of liability under these guarantees as these may be enforced if the company is unable to pay its debts.
Review your terms of business If there are to be any disputes between the company and any customers/suppliers, they will rely on any contracted terms. Make sure you are aware of what the company has contracted to do and ensure you are aware of your customers/supplier’s rights.
Debt collection Any overdue debts should be collected as soon as possible as the longer they are outstanding, the harder they usually become to collect. It may help to agree repayment schedules to ensure the repayment of the debt starts as soon as possible. If agreeing any repayment schedules, you should keep a record of all conversations had with the debtors.
Do not ignore your own debts If you cannot pay your debts when due, you should talk to creditors as soon as possible in order to make repayment arrangements. It is important in your duty as a director to act in the best interests of the Company to ensure you assist it through the difficulties that the pandemic is causing for most businesses.
Hold meetings regularly Meetings should be held regularly so that the directors can discuss the finances of the company. A clear record of all decisions should be kept by way of board minutes and filed in the Company’s statutory books. It is important to have a record of everything that is discussed in the event that the decisions are to be reviewed by a third party (such as Administrators or Insolvency Practitioners).
If you would like to speak to one of our team, please get in touch with the Corporate Commercial department on 01256 320555.