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PERRY LEWIS FCA CF, ASPENSAMI WAITE CORPORATE FINANCE TUCKER
Recession Ahead! Getting your business through a cash crunch. With global recession much on the cards, more and more businesses are likely to feel the impact of tightening credit and the effect on cashflow of the downturn. A fall in sales may have deprived the business of the fuel it needs to drive it forward - working capital. The business is feeling the impact of paying for purchases, wages, overheads and the additional debt taken on in the lockdown, including those unpaid bills. It is extremely easy to slip into panic mode avoiding calls from suppliers seeking payment, paying bills only if you really must and making false promises just to buy more time. Time for time out. Time to stand back and work out a plan to get you through from survival to “thrival” mode.
It may be that technically you are insolvent. This is defined as being unable to pay your debts as and when they fall due. This means you must be extra careful not to be caught in the “wrongful trading” trap where, as a director, you can be made to pay for the losses incurred because of your actions or inactions. Or to pay one creditor in preference to another when they both have equal rights in an insolvency. “Wrongful Trading” is defined in the Insolvency Act 2006 and governs the actions of the Directors where: “They knew, or ought to have concluded that there was no reasonable prospect of avoiding insolvent liquidation” and they did not take “every step with a view to minimising the potential loss to the company’s creditors” First some principals to stick to when making a survival plan:
