The way forward in the fight for business

In recent months, businesses have been closing through no fault of their own. From the global pandemic, war in Ukraine and rise in energy prices, to localised issues including Brexit, political instability and increases in the cost of living and tax liabilities, UK businesses are having to navigate the eye of a perfect storm. So what happens when things get difficult? Head of Litigation at Dutton Gregory Solicitors, Andrew Witt, explains.

It started with the closure of hospitality in 2020. Just when the sector was in recovery from COVID, soaring energy prices and people reducing their spending has dealt another killer blow and caused a ripple effect through suppliers of food, furniture, laundry, business support, etc.

The Commercial Property sector is adjusting to a fast-track evolution, Retail is coping with the public having less money, and everyone is suffering from an unpredictable and weakened economy.

At the end of the day, if outgoings of a business are higher than its income, it is no longer viable and there is a widespread misconception amongst business owners that having a Limited Company protects them from any personal liability. Even if a business fails, individuals have responsibilities to creditors.

This is when a licensed insolvency practitioner can conduct a review of a business and advise upon an appropriate course of action:

1) Corporate Voluntary Agreement (CVA)

Creditors can agree to be paid a percentage of what is owed rather than potentially receiving nothing. Any CVA needs the approval of the majority of creditors and will be subject to the supervision of an insolvency practitioner. An agreed amount will be paid over a period of time.

2) Administration

A company may have some value in its brand or intellectual property that would be attractive to a third party.  Administrators will look for buyers that could agree to take on some of the liabilities, provide liquidity and save jobs.  

3) Liquidation

Insolvency Practitioners will be appointed to wind up the company’s affairs and try and realise monies for the benefit of creditors. Liquidation can result from directors recognising the company cannot continue or a Winding Up Petition being presented by creditors (including HMRC if tax has not been paid.)

Lawyers such as myself can introduce clients to insolvency practitioners and then assist in the process as may be necessary, such as securing the appointment as Administrators.  We can help pursue or defend claims and assist with negotiations between directors and creditors.

More recently, we have been asked to review advice given by Financial Advisers and Accountants to companies about the application and use of “Bounce Back Loans”. Introduced by the government to help businesses during the pandemic, they were subject to certain criteria and had to be used appropriately. In some cases they were not, professional advice was incorrect and directors who misused the loans now face a personal liability to repay the money.  

It’s the same for dividends, which should only be declared and paid when a company makes sufficient profit. If business owners have been advised incorrectly, there may be a Professional Negligence Claim.

For companies still doing business, my tips for 2023 are all about good credit control:

1. Avoid extending credit terms
2. Do not let payment deadlines slide
3. Be proactive and quick in debt recovery
4. Review credit terms and policies (e.g. ‘Money on Account’ and ‘Payment on Delivery’)
5. Carry out due diligence on all new clients

The next 12 months will be hard, but it is important to remember that professionals can offer help and support, as well as protect and sometimes help save a company.

Andrew Witt is a Partner and Head of Litigation at Dutton Gregory Solicitors, a law firm with offices in Hampshire, Dorset and Surrey.

He can be contacted on 01962 624477 or at a.witt@duttongregory.co.uk