As the lockdown comes to an end, many company directors are having to make tough decisions. Despite the devastating physical and mental effects of the epidemic, so far, the economic disaster predicted by many has not occurred.
Many companies were protected from the impact of the lockdown by the government’s actions.
Many corporations, including those who would otherwise have had difficulty, have been aided by the initiatives to safeguard their businesses and employees as well as by the measures to ease bank debt.
These reinforcements, on the other hand, are coming to an end, and many board members are concerned about whether they will be able to trade on their investments and pay off the accumulated debt, whether any accrued liabilities necessitate a restructure for survival, or if they need to consider the possibility that their firm may no longer be viable.
Directors must favour creditors’ interests above shareholders if the firm’s financial health has deteriorated to the point where bankruptcy appears unavoidable.
Following the introduction of the Corporate Insolvency and Governance Act 2020, there are now even more options for attempting to keep a company viable, but if one cannot be salvaged, it may be time to file for formal liquidation.
The option of doing nothing may have been attractive in the past, as the existing legislation permits a director to wind down their company without undergoing the scrutiny and inquiry that comes with a liquidation.
The Insolvency Service may only target company directors who are still in existence or have entered a formal bankruptcy process. The directors of a dissolved firm can only be investigated if a request to revive the company is submitted to the register.
Under the Bill, which is expected to become law later this year, the Insolvency Service will have the authority to investigate and potentially disqualify company directors following company liquidation. The legislation, when passed, will have retroactive applications.
It’s apparent that the Government intends to pursue directors who attempt to avoid repayment of government-backed funds, such as CBILS or Bounce Back Loans, by dissolving their firm rather than going through a formal insolvency procedure.
New powers have been granted by the UK government to deal with badly performing directors of shut firms.
According to this bill, in the event that a company’s directors are aware of financial difficulties but haven’t sought legal counsel since doing so “may expose the corporation and its stakeholders” to risk, they must do so as soon as feasible. Doing nothing now and hoping the issue will go away carries a significant danger for future board members.
Richardson Lissack can assist and advise directors and firms that are facing financial strain or have concerns about the future. Restructuring and rescue alternatives are available, and we’re here to discuss them with you.