Finding a rescue route for my failing business due to Covid-19

By Keith Tully

The unprecedented impact the coronavirus pandemic has had on a global scale has reserved pages in history books and spiralled the review of business risk planning exercises far and wide. From tearing out seamless supply chains, historic business partnerships and loyal customer bases, companies across each continent have been forced to write their endings, conclude trading and close shop due to Covid-19 pressures.

Many shopfronts are clutching to the thoughts of a recovering economy, late-blooming customer demand and end-of-year surges in trade to help bolster performance and recoup missed income due to the enforcement of strict social distancing measures and worldwide lockdowns. The first step to finding the best route for your business is to assess the financial health and level of damage weathered, including the likelihood of this being reparable. At this stage, you should seek advice directly from a business restructuring and recovery specialist as there is no ‘one size fits all’ scenario.


Seeking advice from a licensed insolvency practitioner

By turning to a business recovery specialist, they will be able to personalise advice to your scenario as the route you take will be determined by the financial position of your business, for example, asset value, liabilities, balance sheet, cash flow strength and cash reserves. By conducting a consultation with the company director and taking into consideration state support established to prevent business closure due to Covid-19, a licensed insolvency practitioner will be able to illustrate the extremity of the damage. By accessing advice from an experienced insolvency practitioner, you can make informed decisions, shield your business from obvious missteps and pave the road to recovery.


Handpicking company rescue route to weather Covid-19 storm

The route you take will be dictated by your contribution value to the local economy, your role as an employer, productivity and reputation. If you are a household name with a well-built legacy, a core employer and a high-value contributor to the economy, you may be able to assess external support or state backing to prevent a black hole from forming in the economy and to protect the livelihoods of employees.

Company directors are legally responsible for the daily running of the business, maintaining financial interests and spotting early signs of business difficulty by carrying out a balance sheet and cash flow test. This will help illustrate if the business has any weak pressure points, if liabilities outweigh assets and if the business requires an emergency cash injection to survive the remainder of the pandemic which is likely to have a long-lasting effect on the economy.

There are several routes available, such as a Company Voluntary Arrangement if you are struggling to meet liabilities, Company Administration if your business is insolvent or lighter support measures such as a Time to Pay arrangement to restructure tax liabilities with HMRC if it’s a helping hand that you need.


Company Voluntary Arrangement

A Company Voluntary Arrangement (CVA) or fast-track CVA can help re-evaluate business outgoings by collectively reorganising outstanding costs to creditors into affordable instalments. You can enter a CVA upon guidance from your insolvency practitioner and the agreement must be favoured by over 75 per cent of majority voters for it to be approved. If you are struggling to fulfil essential liabilities on a long-term basis, a CVA can prevent you from progressing to a serious stage of debt which may eventually force you into company liquidation. Company Administration is a suitable alternative for an insolvent business as a licensed insolvency practitioner will manage business affairs in the hope to facilitate recovery.


Company Restructuring

Analysing business operations, outgoings and incoming costs could result in the restructuring of the business. A licensed insolvency practitioner may carry out a cost-cutting exercise to streamline business liabilities and make daily maintenance more affordable. By implementing stricter credit control and due diligence measures, the likelihood of incurring bad debt instantly reduces, mitigating client and supplier risk. If your business requires a cash injection or alternative finance to improve cash flow, a restructuring exercise can identity and implement such measures.

As Covid-19 continues to test the viability of businesses of all sizes, sectors and trading styles, many continue to weather the storm with a limited view of prospects due to challenging trading conditions as the pandemic continues to eliminate the weakest traders. If your business is temporarily experiencing financial pressure as a direct result of the pandemic, it is essential to seek a business rescue solution to prevent the business from further deteriorating or falling victim of putting creditor interests second.

About the Author

Keith Tully is a partner at Real Business Rescue, a UK firm made up of licensed insolvency practitioners and business rescue specialists. Keith has 30 years’ experience in the sector, assisting company directors struggling as a result of the coronavirus pandemic.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.