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The Responsible Director

Posted on February 08, 2012

Mark Supperstone, a partner of ReSolve, looks at the challenges facing businesses in today's tough economic environment and advises directors on what they need to do to prevent their business being a casualty of the recession.

As anyone that reads a newspaper or watches television knows, we continue to live in uncertain times. Growth across much of the western hemisphere has stalled, inflation and unemployment has increased, there is turmoil across much of the Euro zone, and fears abound of a double-dip recession.

So what does all this mean for the UK?

The scale of uncertainity that presently exists in the marketplace makes it very difficult to accurately predict the direction in which the UK economy will move. Small-to-medium sized businesses are continuing to struggle to access capital and make ends meet, growth targets remain difficult to achieve and businesses are being placed under more pressure than ever from creditors such as HM Revenue and Customs. As a result, the level of enquiries for our services is increasing and some commentators have even suggested that corporate insolvencies may reach 28,000 in 2012, an increase of 75% on 2011!

So, what can directors do to avoid their own Company being a victim of the recession?

Firstly, directors need to identify that they might have a problem.  Several basic indicators of potential insolvency include:

  • Being placed 'on stop' by suppliers
  • Falling behind with payments to HM Revenue and Customs
  • Preparing late or unreliable management accounts
  • High staff turnover
  • Pressure from suppliers to settle outstanding debts
  • Liabilities that outweigh assets
  • Bouncing cheques
  • Struggling to pay weekly/monthly wages, and
  • An inability to borrow money from banks and other financiers.

This list is far from exhaustive but covers some of the most common issues we see when faced with businesses in a state of financial distress.

Next, directors should ensure that they take early advice from a specialist. Too often directors wait until the very last minute before seeking help, by which time it is normally too late for anything viable to be done. Very rarely can businesses be saved in such situations. My advice to all directors would be to take advice as early as possible, if nothing else it may help them sleep at night!

By identifying the warning signs at an early stage, directors might be able to introduce measures to avoid formal insolvency.

Typical steps might include:

  • Quickly reducing overheads
  • Accelerating efforts to increase turnover by running marketing campaigns, discounting certain product lines, etc.
  • Monitoring cash closely on a daily basisAgreeing repayment terms with certain critical suppliers
  • Encouraging customers to pay earlier, perhaps by offering early settlement discounts
  • Replace under-performing or expensive staff, and
  • Obtaining advice where necessary, for example from the company's accountant regarding the reporting of financial information.

My strong recommendation, however, is that directors ensure their financial reports are accurate and timely. Only by having the financial information readily available can the health of the company be monitored and subsequent action taken in a timely fashion.

In the event that action is not taken by directors within a reasonable timescale, there is the possibility of directors putting themselves at personal risk. The major risk facing directors who continue to trade a business insolvently is being found guilty of wrongful trading. This is when directors of a Company continue to trade knowing that the business will not avoid insolvent liquidation.

The penalties for wrongful trading can be quite severe and include being disqualified from taking on any directorships for a period of 15 years, being forced to pay heavy fines and, in some cases, being made to repay losses incurred during the period of wrongful trading.

To avoid the risk of being liable for wrongful trading directors should always take advice at an early stage. Most recovery and restructuring experts do not charge for initial meetings and would be happy to provide support and assistance to directors who suspect that their business might need financial assistance.

In summary, don't take your eye off the ball, and when problems are identified seek advice quickly to ensure you do not become another victim of the recession.

ReSolve is a boutique restructuring practice which prides itself on providing practical solutions to complex issues. We work with companies to create a specific and achievable strategy which can range from a negotiation of a time to pay agreement with HM Revenue and Customs to managing a refinance and/or restructuring of an entire business

For further information regarding ReSolve or the services we offer, please visit our website at www.resolvegroupuk.com or contact Mark Supperstone for a confidential, no obligation discussion on 020 7702 9775.

 
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