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Avoiding the Business Equivalent of Long-COVID

23 April 2021 | 3 min read ⧖

If your business has survived through the COVID lockdowns with cash in the bank, customers who continue to pay on-time and you don’t need to persuade key stakeholders to buy into a restart plan, you don’t need to read further.

However, many businesses do not have the luxury of such certainty.

Avoiding the business equivalent of long-COVID

Government support and forbearance by banks and some landlords and suppliers have kept many businesses alive through the pandemic. However, many of those businesses will restart burdened with, amongst other things, increased debts (to include unpaid rent), out of date stock, reduced customer loyalty and little or no cash in the bank. To avoid the business equivalent of long-COVID (effects that continue for months, or perhaps years, beyond COVID proper) they need to formulate a restart plan that can be agreed with key stakeholders, and enables the business to do more than scrape by, month to month, paying interest.

The cash problem

Many businesses that were profitable before COVID-19, and will be again, have been weakened by the impacts of the pandemic and will need some combination of: agreement for further forbearance, borrowing, additional capital or debt write off.

If you find yourself in this position, don’t panic but don’t ignore or delay dealing with the issue –- take proactive steps to address the issue promptly. There are positive factors currently at play such as:

  • There is general acceptance that the difficulties faced by most businesses are not linked to bad decision making by management, which often tends make investors and lenders wary of funding businesses with cash flow difficulties.

  • If you can ultimately pay your debts and can show a convincing business plan, banks and other funders should be open to negotiating with you.

  • If you cannot ultimately pay your debts, or if the business would be paralysed by doing so, you can look at a formal restructuring process.

Before embarking on complex negotiations, you should develop a restart business plan. Your plan should consider, even if briefly, how your business would fare under each of the formal restructuring options, with modelled financial projections. It may transpire that it is actually in the best interests of the business to use formal restructuring. Alternatively, the projected outcome of formal restructuring may at least provide an alternative to an unattractive proposal from stakeholders that can be used as leverage in negotiation.

Formal restructuring options

We have previously commented on a new summary restructuring process being developed by the Department of Enterprise Trade and Employment.

Quite how the new summary process will sit alongside examinership remains to be seen but the position should become clear in the near future and it is hoped that it will be in place by the end of July.

Both examinership and the new restructuring process are intended to provide for the survival of businesses and the preservation of jobs for the benefit of society. They will both provide a mechanism to write down debts.

Negotiating with stakeholders

It cannot be ignored that however much they may want to assist you, your landlord, supplier or other stakeholder may equally be under pressure for cash. Accordingly, they may need to factor assisting you into their business plan that they are putting to their creditors and those that ask first stand the greatest chance of success.

Financial institutions won’t be under pressure for cash but will review your plan carefully. As usual, if your plan does not clearly show a good prospect of ultimately being able to repay debt in full, it is unlikely to be attractive to lenders.

Conclusion

Consider how your business would fare under a formal restructuring process when formulating a business restart plan. It may or may not work for your business but it won’t cost much to explore and even if not optimal; may provide you with a negotiating tool.

For more information, please contact a member of our Restructuring & Insolvency team.


The content of this article is provided for information purposes only and does not constitute legal or other advice.

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Judith Riordan

Partner


Related Expertise

Restructuring & Insolvency
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