Lawyers from Mason, Hayes & Curran have warned business owners and directors not to “stick their heads in the sand” and instead to come up with realistic plans to ensure their business stays cashflow positive.
They were speaking at a webinar on the issues facing business as they consider how and when to reopen as COVID-10 restrictions ease.
The law firm’s head of dispute resolution, Maurice Phelan, warned that if it was clear that a firm was insolvent or on the brink of insolvency, directors’ duties shifted from acting in the interests of the company or shareholders to acting in the best interests of creditors, and that this carried obligations in law.
He said directors should ask themselves a number of questions when formulating a plan, including whether the company could pay its debts and how its customer base would be affected by restrictions.
They should also look closely at payroll costs and contractual obligations such as financial covenants.
Mr Phelan added that new public health regulations were particularly relevant to businesses in the hospitality sector. “What do you need to do to make your business premises compliant with the new hygiene and physical distancing requirements? What will that cost be - in real terms and in lost turnover?”, he urged businesses to examine.
In order to avoid personal liability, he advised directors to have a credible plan with realistic projections, and a record of that plan. He also said board meetings should be more frequent at this time.
Partner Gareth Steen focused on companies facing pressure from creditors. He pointed out that all creditors in the same class in an insolvency process must share in the assets of a company, and that paying one creditor ahead of another risks being regarded as an unfair payment.
In this case, “the rationale for payment must be carefully documented”, he added.
He urged businesses to keep in contact with major creditors, and try to gain their support for continuation of the business