I’m the director of a company. What should I think about before accepting any of the funding that has recently become available?
Directors of a company that is in, or potentially facing, financial difficulty have a duty to act in the best interests of creditors as a whole. Failure to comply with that duty can have consequences for directors (including personal liability and disqualification if directors get it wrong).
The duty to act in the best interests of creditors as a whole begins when the company is (or in some cases is potentially or at risk of becoming) insolvent i.e. its assets are worth less than its liabilities and/or the business is unable to pay its liabilities as and when they fall due. However, just because a company is insolvent doesn’t always necessarily mean than an insolvency process is inevitable. Sometimes, the insolvency might just be caused by a temporary cashflow problem or perhaps wider problems in the business that can be overcome by making changes to the business itself.
In addition to that, the potential liability of directors ramps up even further when the company reaches the stage that the directors have concluded (or ought to have concluded) that there was no reasonable prospect of the business avoiding liquidation or administration. If the business reaches that stage, in addition to having to act in the best interests of creditors as a whole, directors can find themselves personally liable unless, from the time the directors ought to have reached that conclusion, they took every step that they ought to have done to minimise the loss to creditors. This is known as wrongful trading.
On the 25th June 2020, the government introduced new legislation – the Corporate Insolvency and Governance Act 2020 – which includes measures to temporarily relax the rules around wrongful trading with the proposed changes to take effect retrospectively from the 1st March 2020. Essentially, the changes say that any court looking at a potential wrongful trading claim against a director is to assume that the director is not responsible for worsening the company’s financial position between 1st March 2020 and the 30th September 2020. Whilst the wrongful trading rules have relaxed, directors still need to proceed with caution if the business is potentially insolvent as the new Act does alter other potential pitfalls for directors, like the risk of breaching their duties or allowing the company to enter into transactions that can potentially be challenged.
The support being offered by the government is potentially a lifeline for businesses under pressure through no fault of their own, but notwithstanding the recent changes to the wrongful trading rules it is still likely to be important for the board to carefully consider whether it is appropriate to make use of the loans, grants and tax forbearance that are on offer.
Exactly what the board should consider will vary from business to business and getting it right can sometimes involve balancing several different (and at times conflicting) priorities, challenges and concerns.
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The MHFA training makes this clear, it should be made clear in the MHFA role specification and procedures and discussed during regular MHFA peer support and MHFA surgery sessions. It is important to ensure that where an Employee Assistance Programme is in place, all MHFAs have details of that scheme available so they are able to instantly share details of the scheme with those who require support. If in doubt due to serious concerns then using 999 or Samaritans is an option.
Employers have a statutory right to require employees to take annual leave at their direction, subject to providing staff with notice equal to at least double the length of the leave that you are directing them to take (e.g. 10 days’ notice for five days leave). However, this measure is not likely to achieve any urgent cost savings or alleviate immediate cash-flow pressure as holidays would need to be paid.
Clearly, annual leave can be taken on furlough so you could have staff on furlough and annual leave.
Statutory leave includes family related leave, sick leave or parental bereavement leave. Claims for furloughed individuals returning from statutory leave should be based on their salary, before tax, and not the pay they received while on statutory leave.
Similarly, claims for furloughed employees returning from a period of unpaid leave on sabbatical should be based on their pay they would have had on paid leave.
The Confederation of British Industry
“What you need to know about coronavirus and how it will impact your business”. This includes the very influential and highly regarded daily webinars hosted by Director General Dame Carolyn Fairburn.
https://www.cbi.org.uk/coronavirus-hub/
The Entrepreneurs’ Forum
Links to valuable resources collected by the Entrepreneurs’ Forum team as requested by its members and partner network, including on People, Finances, Physical and Mental Wellbeing, Technology and Leadership.
https://entrepreneursforum.net/support-hub
RTC North
Billed as containing “all the UK government information in one place”, this resource includes information on access to finance, employees, planning and leadership, Growth hub toolkits, and working from home.
https://www.rtcnorth.co.uk/covid-19/
Newcastle Gateshead Initiative (NGI)
Businesses across the UK and around the world are sharing their expertise in everything from remote working to business planning. The team at NGI have collated some of the most useful resources, alongside its own content which is designed to help partner organisations and other businesses across North East England.
https://www.ngi.org.uk/covid-19-business-resources/
North East of England Chamber of Commerce
The NEECC brings together its latest advice and guidance for businesses, as well as some of its own FAQs.
https://www.neechamber.co.uk/covid-19
Greater Manchester Chamber of Commerce
The Chamber has pulled together information about how it and others in the area are supporting all businesses during the Covid-19 outbreak.
https://www.gmchamber.co.uk/covid-19-coronavirus/
North East Growth Hub
The North East Growth Hub toolkit is intended to provide businesses with the latest advice, guidance and support available from government in response to the COVID-19 pandemic. Topics covered include:
- Financial support available for businesses
- Official guidance for employees, employers and businesses
- Advice on effective home working
- How to care for staff/suppliers/customers and prevent the spread of COVID-19
https://www.northeastgrowthhub.co.uk/toolkits/covid-19-coronavirus-toolkit
Pro-Manchester
Links to valuable resources collected by the Pro-Manchester team, including national Government support and advice, regional support and cyber security advice.
https://www.pro-manchester.co.uk/home/covid-19-support/
Innovation SuperNetwork
The Innovation SuperNetwork, a “network of networks”, detail on their website what their team of Innovation Managers are offering during these difficult times, as well as details of funding available, and what is being offered by their numerous partners.
At the discretion of the lender, the Scheme may be used for unsecured lending for facilities of £250,000 and under.
Lenders were required to demonstrate lending additionality (i.e. lending that without the Scheme, wouldn’t have otherwise taken place). The Scheme has been extended to those businesses who would have previously met requirements for a commercial facility and would not have been eligible for CBILS. As a result it is suggested that all viable small businesses affected by Covid-19, and not just those unable to secure regular commercial financing, will now be eligible should they need finance to keep operating.
Primary Residential Property cannot be taken as Security under the Scheme. If the lender can offer finance on normal commercial terms without the need to make use of the Scheme, they will do so.