The beginning of this year will be another challenging period for businesses here, with the ending of the furlough system and a moratorium on debts. However, there is optimism on the horizon, thanks to the roll-out of a Covid-19 vaccine. Ulster Business asks Joan Rice and Barry O’Donnell, both licensed insolvency practitioners with Harbinson Mulholland, about what a company can do if it finds itself in difficulties
What do you do in your role as licensed insolvency practitioners?
Barry: It’s a very wide and varied role. We typically get our clients referred to us by their own accountant. We would give them an initial consultation to find out as much information as possible. We would then review and assess their financial position and set out a range of options appropriate for that business.
What are the main issues facing businesses in difficulty as we head into 2021?
Joan: Taking a simple way of looking at it – you can’t pay four months of outgoings with one month of income. Revenue streams have been erratic, with the lockdowns and reopenings, and it will be difficult for some businesses to deal with a backlog of creditor debt. The businesses which are going to survive are those which are proactive, and those which plan ahead.
Barry: One of the main issues affecting most firms will be the end of the Government’s furlough system in March. There will be things such as deferred tax and VAT payments, which will come home to roost. Although there has been a moratorium on those debts, they are still there – they have been pushed back a while. There also remains the uncertainty facing businesses – when will we return to some form of ‘normality’?
What can a business facing difficulties do to face up to these issues and what are their options?
Joan: Having the right information to hand is key. When you have clarity on the figures, you will be ready to hit the ground running once restrictions are lifted. It’s the same in dealing with creditor debt. Stay engaged with the key stakeholders in your business as communication is vital to any turnaround situation. They will also be more likely to listen if you have a clear strategy. Regardless of how bad things appear, there are always alternative courses of action – we can help a business to consider those options.
Barry: The past is the past. For any business coming to us, facing difficulties, you need to know what your current balance sheet looks like and what your forecast will look like. That has been very difficult over recent months given the uncertainty.
Joan: Hopefully 2021, and the vaccine, will allow us to look forward again. Forecasting will become more feasible. Businesses don’t have to come in to us with their strategy already mapped out. Providing pre-insolvency and turnaround advice is our bread and butter – it’s what we do. We can act as a sounding board and point them in the right direction.
Barry: And always be proactive. Don’t stick your head in the sand. Seek advice sooner rather than later.
What issues are companies facing regarding their workforces?
Barry: Staffing levels may be an issue going forward. For example, a company may feel it doesn’t need its entire workforce and may have to look at laying off some of its workers.
Joan: It’s probably going to be one of the reasons which prompts people to seek advice early in 2021. The process of selection/ consultation regarding staff redundancies requires a lead in time, which needs to begin long before the end of March when furlough finishes. There will be some difficult decisions to be made in coming months.
What could businesses be doing now to put them in better shape when the restrictions begin to lift
Joan: If you have the right information, you make better decisions. Not just updating financial records, but also getting valuations of the business assets. Know your balance sheet; know your business model. What would your business be worth in the event of a break-up? If you had a viable business pre-Covid, then you will have one after Covid. It just may take some hard work and restructuring to get there
Barry: Again, it’s about being proactive. There may be scope in a business for restructuring. If you have a large entity, some parts of the business could be doing well, and bouncing back, and others not.
How do you go about rescuing a company?
Barry: You start off by looking at where it currently is – getting an up-to-date financial position. In many scenarios, cash is king – can you open your doors tomorrow? What does the short-term future look like? Do you have liquidity? We would examine what the best outcome could be – would an administration give a business enough time to restructure? Would a CVA (company voluntary arrangement) give them a chance? These are some of the options.
Joan: Just prior to the hit of Covid, there were a number of high-profile CVAs in the retail sector – many of them didn’t go down well. They were perceived to be biased against the interests of the landlords. That may make the hill a bit higher to climb for SMEs looking to ask their creditors to accept less than 100 pence to the pound. There will be a tranche of CVAs in 2021. Whether they are accepted by creditors depends if they are seen to be a fair balance between the interests of all the stakeholders. The pain needs to be shared across all the stakeholders of a business – not just the creditors.