The COVID-19 shutters are being lifted as small cafes, retailers and restaurants are reopening.
Businesses have suffered a major shock, particularly in the hospitality and retail sector, and need to ensure they position themselves to secure sustainable recovery and growth with the support of a coronavirus business continuity plan. While restrictions are being lifted, businesses still face significant headwinds, including gaps in government support and eventual winding back of government support, reduced revenue from ongoing social distancing requirements, a general contraction in the economy, fixed overheads, and legacy debt.
So if a business is suffering from financial difficulties caused by COVID-19, how can it ensure a sustainable recovery?
1. Start off by getting the right advice
“Clients we speak to are often unaware of the significant flexibility the law provides to help businesses who have suffered set-backs, even severe set-backs. Generally, the earlier such advice is sought, the better positioned a business is to take advantage of the mechanisms the law provides. That said, businesses should be cautious to ensure they only take advice from regulated professionals as there is an abundance of individuals and companies who thrive on exploiting businesses in financial difficulty,” said Shine Lawyers’ Insolvency Practice Leader, Michael Lalji.
Accountant Jonathan McLeod from McLeod Partners says “many businesses affected by the current pandemic, will be vulnerable targets to loan sharks and unscrupulous and unqualified “pre-insolvency” advisors whose goal will be to extract any remaining equity in personal (home) and business assets using slick advertising and websites that make them appear to be legitimate and trustworthy. Their advice often makes a client’s situation worse and puts them on the wrong side of the law by moving assets and/or destroying books and records.” “The best way to avoid bad advice is to deal with only a registered liquidator or a lawyer with insolvency law qualifications,” said McLeod.
2. Prepare a 100-day cashflow as part of your coronavirus business continuity plan
Every business is looking at a survival plan and managing your cash flow is an essential element in your future-planning.
“It’s important you keep financial records current so cost cutting can be implemented urgently when your outgoing costs are due and incoming revenue can be accurately forecasted,” said McLeod.
3. Negotiating with your financiers, landlord and essential suppliers is critical
“Use your cash flow to help you map out the way forward. This may include, staff changes, payroll changes, negotiations with your bank, landlord and suppliers to develop more cost-efficient strategies to keep your business afloat.”
“Statutory and essential creditors (tax, rent and utilities) must not be forgotten in your business plan, even if creditors are currently providing breathing space. Directors should remember that even with legislative changes to insolvent trading, directors can still be held personally liability for unpaid or unreported superannuation, PAYG and GST debts, and may still have personally guaranteed other obligations (such as commercial leases),” said Lalji.
4. Look at the possibility of making a claim on your business interruption insurance policy
Business interruption insurance policies may provide cover for losses caused by COVID-19. It’s worthwhile checking your policy to consider whether your insurance provides cover. Rejected Business Interruption Insurance Claim? You may still have a claim against your insurer.
5. Take small steps to relaunching your business when conditions suit you
Keep records and a clear plan of what you need to do to put your business on-hold but also have a clear recovery plan for when you can incrementally start again. If the 10 person per café rule won’t work for your small business, think about how you will slowly re-engage staff, stock and attract customers as those numbers increase.
“Consider what funds will you need and where will you source them to action your plan. Ask yourself, will personal assets or other investors need to be used as equity or can new finance be reasonably obtained and maintained in your cash flow?” advised McLeod.
While the decision to relax the laws of insolvent trading for six months from government is welcome, directors still need to be cognisant of the their fiduciary and other statutory obligations which remain in place.
How Shine Lawyers can help
If you are concerned about the financial hit that your business has suffered as a result of COVID-19, and need help exploring the options of insolvency or a business restructure to get back on track, our expert Insolvency lawyers can help. As part of your coronavirus business continuity plan, it is worthwhile reaching out for professional advice to give your business the best possible chance. Contact Shine Lawyers today to discuss your options.
Accountant Jonathan McLeod from McLeod Partners provided insights to this blog post.
Written by Shine Lawyers. Last modified: May 25, 2020.