The past twelve months have, without doubt, been a challenging time and very different to anything we have experienced before, from home working and silencing the dog during Zoom calls to the stresses of lockdown. This has particularly been the case for the owners of businesses forced to close during lockdown.
Since last March we have seen unprecedented levels of support from the Government and HM Revenue & Customs along with the introduction of the Covid-19 Insolvency measures, and whilst many businesses have been supported others, many individuals and sole traders, have unfortunately fallen through the gaps.
But for many directors, businesses and individuals, is the next twelve months potentially an even bigger challenge?
On the 24th March 2021, the Covid-19 Insolvency measures were extended to the end of June 2021. These measures include restrictions on the issuing of Statutory Demands, termination clauses in contracts and the suspension of the wrongful trading provisions (s214 IA86) for Directors who can evidence their company’s trading was affected by the pandemic.
However, whilst these measures and the extensions are welcomed by businesses and Insolvency Practitioners alike, as with all good things, they must come to an end. Sadly, at that end, the problems for some directors, businesses and individuals may begin.
The economy has retracted like never before, Gross Domestic Product (“GDP”) declined by 9.9% during 2020, the biggest reduction since 1709, and whilst the general consensus is that whilst the economy is bad, Insolvencies will increase, this has not been the case. This is reflected in the number of insolvencies we are seeing, (for example, February 2021 saw a 49% year on year reduction in corporate insolvencies).
Given the significant retraction in the economy, coupled with uncertainties over the future, both in terms of consumer confidence, removal of restrictions and the constant unknown of Brexit, a return to what was considered normal may not be immediate; in fact it is likely that there will be a significant lag before the economy bounces back to pre-March 2020 levels.
The Office for National Statistics estimates that 75% of businesses are currently trading, a slight increase from 71% in January 2021. So whilst the green-shoots of a road map to recovery are emerging, after the clamour of excitement from reopening, the delay in bounce back is where many businesses may begin to encounter financial problems, either as an enhancement of existing problems or new unknowns.
It is an old adage that cash is king in business, and although reopening will hopefully bring around an increase in consumer spending, the level at which this is sustained is yet to be seen. Meanwhile, the costs of trading will need to be met, stock purchased and the cost of employees returning from furlough. Also to be factored in are the repayments of any Bounce Back Loans and any deferred payments, together with the ongoing costs of maintaining social distancing.
More now than ever directors will need to be proactive in the steps they take to ensure that their businesses not only survive, both in the short and long term, but prosper in a new economy.
Directors should take stock of the current financial position of their company, undertaking an honest review of cash flow and future projections. The past twelve months will undoubtedly have taken a heavy toll on the finances of many companies and, now more than ever, it is important for directors to be pro-active and have their own road map for the next twelve months; it’s essential that they understand their market place and potential challenges that may lie ahead.
I would urge those business directors who, having undertaken this review, can see that they may have problems ahead, to take immediate advice. Taking immediate action can save a business’ future.
As Insolvency Practitioners, our focus is not just on formal insolvency proceedings. If we are appointed at an early stage, we can provide an independent view of the company and the options that are available. The earlier the steps are taken to resolve any potential problems, the more options are available.
Business Recovery can take many different shapes and sizes, and in many cases formal insolvency proceedings can be avoided, provided early action is taken.
Whilst in some circumstances formal insolvency cannot be avoided, in many instances we can keep the doors open and assist in restructuring the business.
RPG Business Recovery, which is based in Manchester, can provide a full range of both formal insolvency procedures and business restructuring and refinancing. Our Insolvency Practitioners have a wealth of experience and provide honest sound advice when it is most needed. Our advice is always provided by a qualified Insolvency Practitioner. We would be very happy to have an initial discussion with you regarding your own business or your clients’ businesses. You can call the RPG Business Recovery Team on 0161 608 0000
Insolvency Practitioner, RPG Business Recovery