• Swindon & Wiltshire Experts
• Wednesday May 1 2024
• Author Name: Gail Vallis

What to do if your business is facing financial difficulties – Gardner Leader

If your business is facing financial difficulties you need to take action, urges corporate law expert Gail Vallis from Gardner Leader

The shock news of Ted Baker’s collapse into administration recently brings businesses facing financial difficulties into the spotlight yet again.

Many previously profitable companies, and indeed lots of those that were already struggling due to the Covid-19 pandemic, are finding themselves in unexpectedly difficult situations due to the current economic climate.

Below are some steps you should take if your business is facing financial difficulties:

1. Seek advice

One of the first steps you should take if you are concerned about the financial situation of your business is to take advice.

Your accountant is often a good person to start with, lawyers, HR professionals and other advisors may also be able to provide useful input into your situation.

2. Consider your director duties

As a director of a company you must always consider your director’s duties. Broadly you must ensure that you act in the best interests of the company at all times and consider the employees, creditors, customers and suppliers when doing so.

Ordinarily when a company is facing potential insolvency the directors must then first and foremost look to reduce the loss to the company’s creditors.

3. Mitigate the impact

You should do what you can to mitigate the impact. Wrongful trading laws that were suspended for some time during the pandemic are back in full swing. If it is possible to do so, ring fence money paid by customers for orders not yet fulfilled to protect it in the event the worst were to happen.

4. Take action

Not taking action will result in the situation getting worse. Though it may be uncomfortable it could save your business in the long term.

So what are your options?

Consider how you can free up much needed cash now. If you haven’t already, review your overheads to see whether there are any non-essential services that can be cut or whether you are paying for service that you are not currently using. Make sure you are on top of your credit control.

Consider whether invoice financing would work for your business or whether it would be possible to ask creditors to swap their loans for equity your business. Are there shareholders who can inject further funds by subscribing for more shares?

Do not write off the idea of a sale. You might not get the price you would have expected, but it could be a way to reclaim some money for you and your creditors.

Remember that insolvency proceedings are an option. There are a number of options available to you here including administration and liquidation.

Liquation is the most severe of the two options where the assets of the company are “liquidated” to provide some return for creditors whereas administration will attempt to save the business.

Gail Vallis is a senior associate in the corporate team at Berkshire and Swindon law firm Gardner Leader