Navigating your way out of lockdown

16th July, 2020 by Carl Mifflin

Carl Mifflin, Partner and Head of Restructuring and Insolvency at Howes Percival, considers the challenges facing businesses as we emerge from lockdown.

As we emerge from the COVID lockdown, businesses face an even greater battle to survive. As well as the tapering off of Government financial support for furloughed workers, consumer confidence is unlikely to return to the pre-COVID levels immediately and companies therefore face the challenge of having to re-open and incur overheads with substantially reduced turnover. It is therefore essential that directors take a realistic look at the short to medium term viability of their businesses and, where appropriate, seek specialist restructuring advice. Key factors to consider include:

How strong is your debtor book? Many of your customers may have been using COVID as justification for non-payment of existing debts and the Courts have made it difficult to apply commercial and legal pressure on those customers to make payment. The easing of lockdown does not mean that those customers will suddenly be in a position to bring their arrears up to date. Therefore, if your business is reliant on recovering its pre-COVID debtor book to continue meeting its own overheads, you need to be applying as much pressure as possible to ensure payment.
Can you trade profitably with your existing workforce? The furlough scheme has allowed businesses to retain their workforce with Government support, however that support is being reduced and, shortly, removed altogether. This may mean businesses having to consider making redundancies, which may incur a significant and immediate cost to the business. Can the business fund the redundancy costs without jeopardising its own financial stability?
How secure is your supply chain? Just because you are required to recommence trading, doesn’t mean necessarily that your suppliers and customers are in a position to continue supplying to you or ordering from you. How robust and realistic are your cash-flow projections in, what continues to be, an extremely uncertain marketplace?

Fundamentally, these are just some of the key factors you should be considering now in order to assess whether your business requires specialist restructuring advice. It may be that a formal insolvency process is not required, and that a solution can be achieved by considering refinance options and/or renegotiating terms with key creditors and stakeholders. By taking a robust and realistic look forward and seeking the right advice now, there are more options available to businesses in order to survive this crisis.

Howes Percival’s Restructuring Team has significant experience of advising businesses on the steps they can take to restructure their business to navigate through periods of financial stress. Recent examples directly arising from COVID include:

advising a client whose existing structure meant that the failure of one high-risk company within their group would cause the collapse of the entire group. This could be rectified easily by reorganising the group structure to protect the unaffected and profitable parts of the group from those elements of the business at greatest risk of failure; and
advising a client that traded from various leasehold sites through a single limited company, most of which were performing profitably but one of which was significantly loss-making and therefore jeopardising the entire portfolio. We advised on negotiating an amicable exit from the loss-making site with the relevant landlord, with the implementation of a company voluntary arrangement as a last resort in the event that a sensible deal could not be agreed.

For more information please contact Carl Mifflin: [javascript protected email address] or 0116 247 3577.

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