Businesses regularly encounter ups and downs.
But it is necessary to recognise in the case of a company business the difference between a temporary 'dip' in fortunes, whether owing for example to temporary market forces or loss of a replaceable key customer, and when the company is reaching a point that it is simply no longer viable.
In the latter case, there are potential liabilities attaching to directors of a business if they do not take steps to minimise loss to shareholders and those to whom the businesses owes or may come to owe money, so identifying such a scenario is very important.
The key question to ask here is whether it is evident or foreseeable that the business is unable to, or will not be able to, settle its debts as they fall due. These could by way of illustration be bank debts, salaries, tax or supplier invoices.
If this is the case, then there is a risk of the business trading unlawfully which can have serious repercussions for those running the business and of course for the company's employees who may lose their jobs if the company were to enter insolvency.
In this regard, it is vital to be aware of the right to seek specialist advice from, for example, a regulated receiver, solicitor or accountant. The earlier such advice is sought the better, as there may be an opportunity to restructure debt to avoid a business insolvency or take other alternative steps to protect the company's interests that may not otherwise be considered.
And it is important to treat these advisors as allies, not as enemies looking to catch you out. As an owner or employee, being involved in a failing company can be immensely stressful, but these advisors will have seen it all before and be able to provide a reassuring guiding hand. They will also be able to assess the possibility of the business being placed into voluntary liquidation by its directors, as opposed to being forced into liquidation by someone to whom it owes money, which can be a far less stressful and expensive process.
Bear in mind in this respect that the business may need cash to fund such advice at some point, so it would be prudent not to run the account down to zero or to transfer assets (property) out of the business before they are consulted.
And start to pull together in ample time the Information they will need to advise effectively (or the company will itself need if an insolvency event occurs and it is not being advised), such as dates and details of government grants received, bank facility letters, up to date management accounts, key contracts, lists of assets, debtors and creditors as well as detail of non physical brand and image rights owned by the company (known as 'intellectual property').
It is equally important in such a situation not to pay one creditor (ie a person to whom the business owns money) in preference to another, as this could be called into question or set aside if the business subsequently enters insolvency.
There are also statutory schemes available to help protect and support employee interests in the event of a company insolvency, which the above regulated specialists would be able to advise on specifically, although detail is also available online.
So, while this can be a highly stressful time, as an owner or director of a failing company, it is important to stay calm and equipped to see around corners as best as possible to avoid hitting an unavoidable crisis point unprepared. Actions ought not to be kneejerk or aggressive to avoid the risk of litigation the company and its directors can ill afford. See our post entitled "The Dangers of Litigation to Corporate StressBusting™" for further information.
Additionally, it would pay not to enter a state of blind optimism that assumes 'things will just get better of their own accord' as leaving matters to chance in this way is not equivalent to satisfying legal obligations. See our post entitled "The Dangers of Denial to StressBusting™" for further context.
At such a difficult time, employees will need to see and feel strong leadership. Therefore, preparation and associated active communication with those affected with the input of specialists who can help as necessary is paramount. Employees should wherever possible be consulted to enable them to financially prepare and emotionally equip themselves for the various possible outcomes so insolvency, for example, does not come as a complete surprise to them.
And amidst all of this, it is important to recognise that, particularly in this day and age, businesses fail for all kinds of varied reasons, many of which are outside its owners or operators control. Provided the operators have used best reasonable and legitimate efforts, and have not conflicted or prejudiced themselves by their actions, there may well be a way out of the woods for the business.
In the event all efforts to rescue a business fail despite best efforts, then our post entitled ""Stressbust™ your way through job, career or business loss" may be of use.
If you are affected by anything contained in this post and would like us to assist or introduce a specialist who might be able to as appropriate, feel free to reach out in to us in confidence via our "Contact" page.
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