Practical Steps For When The Financial Crunch Arrives
Brendan O’Donoghue, head of Restructuring & Insolvency at RBK, observes that many businesses are currently experiencing the benefit of pent-up public demand for goods and services, as restrictions lift and Ireland opens back up. He adds that there are some businesses that will not be able to recover once state supports and creditor forbearance are eased back and ultimately withdrawn.
“Businesses which were already experiencing financial difficulties before the pandemic will likely find their ability to continue to trade untenable in many instances,” predicts O’Donoghue, who has been an insolvency practitioner for over 30 years.
“Directors should be aware that when a company becomes insolvent their duty of care as directors shifts to the company’s creditors rather than its shareholders. Therefore, directors should not take decisions which could worsen the position of their creditors e.g. taking additional credit, continuing to trade etc.”
When a financial crunch in a company arrives, O’Donoghue recommends that directors should undertake these practical steps:
Prepare detailed cashflow statements based on realistic and achievable assumptions.
Meet more frequently and document decisions.
Seek advice from their own accountant and, in some cases, from an independent insolvency practitioner.
O’Donoghue says RBK Restructuring & Insolvency has significant experience in assisting and representing clients in settlement negotiations with their creditors. Many of these engagements are informal in nature and are best where there is a small number of large creditors. They are, however, not binding on all creditors and can be time consuming, particularly where creditor numbers are large.
“Currently, formal arrangements with creditors become binding on all creditors where there is approval by 75% of creditors, both in number and value,” he adds. “I believe that if this threshold was reduced to 50% plus one, as originally envisaged for the SCARP legislation, it would have a positive knock-on benefit in negotiating and formulating informal schemes.”
From his extensive experience, O’Donoghue knows that for many company directors the insolvent liquidation of their business can be a stressful and traumatic experience. “It is important that they select an experienced insolvency practitioner who can navigate them through this process in a clear and transparent manner, to deliver the best outcome for creditors,” he advises.
“We provide specialist independent advice to company owners, directors and their own advisors, regarding restructuring and insolvency related matters. We can also advise company creditors on their options in circumstances where their customer is entering into either a formal insolvency process, or seeking an informal settlement arrangement.”