Expert advice can help firms get through financial difficulties
PJ Lynch, licensed insolvency practitioner, says that businesses have been pushed to breaking point by the extended lockdowns and their problems are likely to remain long after the risks to our physical health have passed.
Article by Arlene Harris, published in Business Post on March 14th, 2021
In a recent interview, I spoke about the continuous lockdown due to Covid-19 and the effects it will have, both on the global economy and the economy here in Ireland. And I wonder if the government really understands that we are facing mass unemployment which will have enormous social consequences with a very considerable financial impact.
These lockdown restrictions throw up a number of questions such as why, if we can shop in a supermarket, can we not buy clothes in a clothes shop? And, if dentists are allowed to open, then why can’t hairdressers and gyms operate if they are obeying similar safety rules – and on a similar vein, when I was walking through Blackrock village at the weekend, I noticed that a lot of people were sitting on benches while drinking coffee, so, why can’t outdoor dining be allowed?
With trade and cashflow down or in some cases, ceased altogether due to the government-enforced lockdown period, it is inevitable that the vast majority of businesses, especially in hospitality and retail, could be severely impacted.
These businesses have been pushed to breaking point by the financial risks posed by Covid-19 and their problems are likely to remain long after the risks to our physical health have passed.
Overall, the longer we wait, while largely depending on vaccine rollout, then the greater the likelihood of the permanent closure of thousands of businesses across Ireland. And this brings about the need for expert advice on closure options.
So, if coronavirus pressures have forced your business into financial distress, a licensed insolvency practitioner can offer expert advice and explain all possible options from restructuring and examinership to wind-up such as a Creditors’ Voluntary Liquidation (CVL).
Option #1: Examinership
The first option available is examinership. So, if your company is reasonably solvent and not saddled with an increasing debt burden, then, examinership could be the option, as it allows the time (100 days) to restructure and trade out of its difficulties. However, if your company is carrying a large debt burden, is on life support from Covid-19 subsidies, has warehoused a portion of its tax liabilities and is receiving additional financial help from government, then it should not enter examinership, as it would be an expensive and time-wasting exercise.
Option #2: Creditors’ Voluntary Liquidation
An alternative option to this would be Creditors’ Voluntary Liquidation. If Covid-19 has forced your business into financial distress which you have no hope of trading out of, then you should look at closure by way of a creditors’ voluntary winding up. And if you decide to go down this road, there are number of financial issues that must be dealt with.
First, if the company owes money to the bank or banks, then the appointed liquidator may agree a settlement with the bank, however, the directors may be personally liable if they have signed a personal guarantee.
It is also important that a stock analysis is carried out, prior to or at the commencement of the liquidation, and stock that has Retention of Title (ROT) is returned to the relevant supplier. Again, this process can be handled by the appointed liquidator.
The issue of rent should be left to the liquidator to arrive at a deal with the landlord, however, if the directors of the company have signed personal guarantees, they have to agree a deal directly with the landlord. But staff redundancy must be dealt with immediately by the liquidator on his or her appointment. If an employee is employed by the company in excess of two years, they have an entitlement to statutory redundancy.
And lastly, taxes outstanding under relevant Tax Heads are rated as preferential in the liquidation. The tax liability of the company is usually dealt with by the appointed liquidator – if the directors have not traded fraudulently or recklessly, it should not be a problem and apart from PAYE, which is categorised as super-preferential, a settlement can be agreed with the Revenue Commissioners.
Once the directors of a company follow the advice of their accountants and a licensed insolvency practitioner and the company does not continue to trade while insolvent, then the winding up should go smoothly.
7 sins that business owners should avoid
And to keep things on an even keel, it is worth trying to avoid the seven deadly sins of company directors by following these guidelines:
- Thou shalt not be complacent in keeping proper books and records.
- Thou shalt not be complacent in preparing Financial Statements.
- Thou shalt not be complacent in filing annual returns with the Companies Registration Office.
- Thou shalt not trade insolvently.
- Thou shalt not trade recklessly or fraudulently.
- Thou shalt not support the operation of the company with monies due to creditors.
- Thou shalt not use company monies to enrich thyself.
Ultimately, as long as the current lockdown continues, the longer it will take for businesses to recover.
PJ Lynch Company
• PJ Lynch, a licensed Insolvency Practitioner, is principal at PJ Lynch & Company at Westland Square in Dublin 2.
Tel (01) 707 9662 or email email@example.com
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