As a director of a company, you have probably spent the last month or so trying to keep pace with the ever changing world and the even more changeable guidance on working practices relating to COVID-19 and deciding whether any of your staff should be furloughed, all whilst trying to ensure the current and future survival and success of your company.
This clearly remains a very uncertain time in which many businesses are struggling to make ends meet, but it is not a time at which to become complacent about the duties which you continue to owe to your company (and your creditors) and the requirements of continuing to run a company during this period.
Some practicalities to consider include:
It would be a good idea to check the company’s articles (and shareholders’ agreement, if applicable) in relation to the calling and holding of board meetings and/or general meetings of shareholders to check that they are fit for purpose during the lockdown and/or after, particularly if one or more persons is/are self-isolating. Considerations will include how many directors are needed for a quorum, whether such meetings can held remotely and/or whether there are alternative means of voting.
Companies House has announced that an extension of up to three months will be granted to a company who cannot file its accounts on time due to COVID-19. You must apply for such an extension before your filing deadline has passed – if you do not, an automatic penalty will be imposed. You can make this application online. Companies that have already extended their filing deadline, or shortened their accounting reference period, may not be eligible for an extension.
Do you have any agreed provisions in place for the continued running of the company and/or the transfer of shares in the event of an unexpected death? If not, you need to think now of what you would want/need to happen in that event to ensure continuity of management and control of shareholding ownership. You may wish to check if you have, or consider obtaining, key-man insurance.
Where you are facing actual or potential insolvency, it is essential that you seek early advice, whether your solvency woes are temporary (COVID-19) related or a more serious medium or long term problem. You may be able to agree a variation of the terms with some of your creditors outside of a formal insolvency process and/or restructure your business (temporarily). You may be able to access special funding which has been made available by the government primarily through the mainstream banks.
Whilst section 214 of the Insolvency Act 1986 (‘wrongful trading’ which imposes personal liability on directors who have caused a company to trade past the ‘point of no return’) has been suspended with effect from 01 March 2020 in response to the current crisis, you continue to owe duties to your creditors and employees as found in common law and codified in the Companies Act 2006. A breach of these duties can also lead to a director having personal liability to the company. This means that you do not have carte blanche to ignore insolvency warning signs just because of COVID-19 or because a single provision of the Insolvency Act has been suspended.
The earlier professional advice is taken the better – and, as well as minimising the risk of personal liability, it maximises the chances of rescuing the company or business.
If you are concerned about the solvency of an entity with which you heavily trade, you can consider revising your terms and conditions to provide you with stronger protections. This may include, if appropriate, including retention of title clauses (as well as ensuring that such terms are properly included in the contract entered into with your customer). It is possible that you have (or can obtain) insurance which covers some of the risks faced.
For further advice on the above, or any other company and/or insolvency issue, please contact Marina MacLennan firstname.lastname@example.org.