Director’s Duties and COVID-19

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Director’s Duties and COVID-19

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These are extremely challenging times for businesses up and down the country. Many are seeing sales disappear, cash collections dry up and profits vanishing. The position we find ourselves in is significantly worse than the equivalent period in the 2008/9 crash.

 

Whilst the Government continues to take steps to limit the impact of the lock-down on the economy there will inevitably be casualties in sectors such as airlines, shipping, hotels and restaurants, exhibitions and conferences, cinemas and theatres, cruise lines, tour operators and travel agents to name a few. If you are a director of a company affected by the Covid-19 pandemic then we are here to help you through these unprecedented times. We have the largest restructuring and business recovery team in the South East and are very experienced in helping directors faced with difficult choices.

At the point a business starts to experience distress, directors need to ensure they are making the right decisions and are taking the right advice. Many directors try to fight every fire themselves without necessarily having the time to manage the process properly or, perhaps more importantly, the expertise. Managing businesses in a stable market has enough challenges as it is, but in an uncertain market it’s doubly important to take proper professional advice at the right time.       

 

Under normal conditions and during the lifetime of a company, directors owe their duties to the company as a whole. When a company is, or is likely to become, financially distressed or insolvent, those duties shift, and directors then owe their duties to the creditors of the company. This shift can occur when the company starts to encounter financial difficulties such as cash flow problems, tightening of credit terms by suppliers and pressure from lenders in relation to existing and new facilities. At this point, directors should seek independent professional advice. A failure to do so could result in personally liability, disqualification and/or an order to contribute to the deficit in the company's assets.

 

Funding to assist businesses is now being made available. The Government is guaranteeing loans by the banks to businesses affected by Covid-19. These loans are expected to be long term, on advantageous terms and interest free for 12 months. They should provide UK businesses a lifeline with which to be able to pay rent, staff and other fixed costs. It may seem pointless adding debt to a struggling business but with proper advice the restructuring of this debt can be managed. The banks are being supportive, they want to be part of the solution to the present economic uncertainty so it’s likely that loans can be deferred, reduced and perhaps repaid a long way down the line. Giving up too early may give rise to a far worse outcome for everyone. It will trigger liabilities to pay current debts, outstanding HMRC debts, rent liabilities, equipment leases and bank debt. There might also be severe personal consequences for directors who have given personal guarantees.

 

If you are concerned or would like support and further guidance, we have a strong advisory team ready to help you. Please contact Noel Ruddy, Dawn Shadwell, William Angas or Ian Lindley to discuss further. 

 

Welcome relief for Directors and LLP members as Government is set to relax the rules on wrongful trading

View more information on the Covid-19 pandemic on PDT Solicitors Covid-19 Legal Hub

The content of this webpage is for information only and is not intended to be construed as legal advice and should not be treated as a substitute for specific advice. PDT Solicitors LLP accepts no responsibility for the content of any third party website to which this webpage refers.

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