By Ian Davison, Associate Director, Restructuring at Grant Thornton in Belfast
The health impact of the COVID-19 pandemic has been devastating and stark. Thankfully lockdown in Northern Ireland is beginning to be eased, and we are starting the long road back to normality.
For many businesses, the true financial impact is now starting to come to light. For some, this is the biggest period of uncertainty that they have ever faced. For others, it could be the biggest challenge since the financial crisis of 2007/08.
Most industries will have seen significant disruption to their supply chain, workforce, and cash flow during the pandemic, and could well continue to see disruptions for prolonged periods of time.
The unparalleled peace-time government interventions to limit the economic impact include; state backed loans, grants, payment deferrals, the job retention scheme, and the most wholesale changes to insolvency legislation in a generation.
Unfortunately, and despite these government interventions, many forecast that the economic impact of COVID-19 could be so significant that many businesses are likely to suffer severe financial distress and potentially insolvency.
Should your business be facing insolvency now or in the future, the first thing you should do is contact an Insolvency Practitioner.
An Insolvency Practitioner will consider your current position and detail the options available to you depending on your specific circumstances. Remember, when dealing with insolvency, your focus must change so as to act in the interests of creditors above the shareholders.
Failure to do so can have significant consequences, including a risk of personal liability and disqualification.
Most businesses go through a phase of financial restructuring at some point in their business cycle, but this does not always have to involve closure. A fundamental reorganisation of a business’ assets and liabilities can often secure the future of the company n the longer term.
For many businesses, a Company Voluntary Arrangement (CVA) may be the most effective way to realise the financial restructuring that they require.
A CVA is a legally binding agreement that allows a company to repay an agreed amount of its debts over a set period of time, usually two to five years.
This is an excellent restructuring tool for those fundamentally solid businesses with short to medium term cash flow challenges. CVAs are very flexible and can be tailored to the specific circumstances of any business regardless of sector, subject to receiving the appropriate threshold of creditor support.
Directors remain in control of the day-to-day management of the business, and an Insolvency Practitioner supervises the CVA process.
Repayment amounts are dictated by affordability based on projected trading, and often provide better returns to creditors when compared to the Liquidation of the Company.
With the above benefits, we anticipate seeing a substantial increase in the number of CVAs in the months ahead.
For further information or advice, Ian Davison can be contacted at email@example.com