What To Do If Your Business Has Gone Bust Due To COVID-19

While many businesses are always flirting with insolvency in normal economic times, the number of companies that have gone bust due to the COVID-19 and the lockdowns is unprecedented.

COVID-19 has offered almost unparalleled challenges commercially and has hurt so many SMEs in the UK, and around the world that there’s little doubt many are just hanging on in hope business will pick up. The end of furloughing has been a huge concern, but Government stimulus should keep organisations that were doing well before Coronasvirus solvent.

In the UK, where many SMEs are businesses dependent on real human interaction, such as cafes, restaurants, pubs and live events, the lockdowns have been devastating. Despite the valiant attempts of Rishi Sunak’s furlough scheme and the partial lessening of lockdown by autumn 2020, a large number of businesses have reached a place where they’re no longer viable as a going concern.

In this article, we look at some of the options for businesses facing shut down.

Always Seek Professional Advice

Even if you’re a switched-on business owner with a clear eye on the finances, tax and accounts, it’s worth checking in with your accountants, and financial advisors. Professional services are up to speed with the Government’s action to support commercial enterprises from handouts to deferring tax payments.

Understand Your Responsibilities

While company directors are responsible to their shareholders when the company is viable, insolvency changes everything. As soon as you officially owe more money than you have at your disposal, your responsibility shifts towards creditors.

HMRC (Her Majesty’s Revenue and Customs) will expect to see evidence that you as the business owner and your directors have acted accordingly.

What can happen when a business is facing difficult times is they start spending whatever little cash reserves they have, however, if your business is insolvent, don’t pay yourself, or anyone else – even a supplier you may feel needs or deserves it.

Fundamentally as soon as your company owes more than it’s worth, the rules change. If there is evidence you’ve given preferential treatment to anyone during this period of insolvency, you might find yourself and also your directors open to charges of wrongful trading.

Consider Liquidation

Closing a company with debt must be done via a process known as liquidation, whereby an insolvency practitioner sells any assets and distributes them to creditors.

Liquidation can be done seamlessly, quickly and, while no directors wish, offers a chance to eradicate creditor pressure and start afresh. And yes, you can liquidate with a bounce-back loan, since those loans bypassed the needs for any personal guarantees.

Company Rescue Might be an Option

Not all insolvent companies end up liquidating. Perhaps alternative finance could be an option or failing that a corporate recovery such as administration.

Many retailers, in particular, take advantage of a structured repayment plan with creditors known as a Company Voluntary Arrangement. These could allow you to pay back a percentage of your debts over time and the company lives to see another day.

Check your Eligibility for Redundancy

Anyone, including directors, can be eligible for redundancy pay, assuming the company has been paying you a salary. In some cases these payouts can be substantial, offering an injection of much-needed capital during a stressful time.

HMRC has a handy calculator, check here, to check what you might be entitled to if you are made redundant.

New Horizons and a Brighter Future

If you examine the career paths of many well-done millionaires, you will likely encounter a business failure or insolvency in everyone.

The key thing with a business that hasn’t worked is to take what you can from experience.

Especially during COVID-19 a good many well-thought-out, and cleverly run businesses simply haven’t made it through no fault of their own. Once the company has been dissolved at the end of the insolvency process, you’ll be free to find new employment, assume another directorship, or start another company.

Tough times don’t last – tough people do. 🙂  Read more of our articles on how to survive and thrive.