Covid-19 – Financial Triage by Company Directors

This note is part of a series that the lawyers of Reddy Charlton will issue on the major legal, personal and business issues that will confront us all during the Covid-19 crisis.

For many businesses, the ongoing Covid-19 pandemic has severely disrupted service lines, employee availability, consumer demands and led to financial instability. The risks to businesses and business leaders who do not plan ahead and prepare for the financial downturn are stark. Reddy Charlton regularly advise financially distressed companies and individuals in both contentious and non-contentious contexts. We are committed to guiding our clients on a safe path through these difficult times. In this article we provide practical financial planning advice for businesses through the use of the ‘triage’ system.

What is Financial Triage and why is it important during this crisis?

Based on the triage system which identifies immediate needs and prioritises them, Financial Triage is a process whereby a director will assess the financial health of the company, record key information points that will provide a clear picture of the true financial status of the company. This will enable informed decision making that will provide action points that will assist the company out of its current predicament.

There are three components to financial triage, namely:-

• Assessment;
• Inventory and
• Decision Making.

Financial Triage is an essential tool for corporate survival during this crisis as it provides an understanding of the actual financial health of the company and will assist in the management of business threats. The existence of these threats (poor debts, limited cash flow, creditor demands) raises very real and important legal considerations including receivership, liquidation, examinership and others. Ignoring these considerations may result in severe adverse repercussions for the business and in some circumstances, professional restrictions and personal liability for directors.

What are the most important steps to take in a financial triage?

Assessment
• Gain a clear view of the current and projected financials of the company
• Review your invoicing and cash flow
• Review your professional indemnity insurance and the level of cover in place
• Review all your policies, subscriptions and outgoings
• Be realistic about your projections
• Speak with your financial director/book-keeper or adviser and gain their perspective
• Consider whose interests you are protecting.
– In a solvent situation your duties are to the shareholders
– In an insolvent situation your duties are to the creditors

Inventory
• Identify and record the company’s inward cash stream
• Identify and record the company’s outward cash stream
• Review and consider carefully the various Covid-19 Government supports and initiatives that are available to businesses. These are evolving, so make sure you have the most up to date information
• Make a contacts list of your creditors and debtors
• Identify and quantify immediate savings that can be made in the business (deferred payments, reduced services, energy savings, licence/subscriptions, salaries)
• Identify and record clearly the company’s immediate and future debt obligations and consider if the company can legally extricate itself from any of these obligations?
• Have regular board meetings and produce sufficiently detailed minutes. This is necessary at the best of times but has a heightened importance during a crisis.
• Make notes of telephone calls and oral discussions.

Decision making
• Identify your financial priorities
• Apply for the ongoing Covid-19 supports and initiatives as necessary
• Develop and maintain a healthy and constructive communication channel with the company’s creditors.
• No matter how bad things might get, never compromise on regulatory obligations (if applicable).
• Always document your decision making and require others within your company to do the same.
• Seek advice in relation to the potential restructuring of the business in order to cut costs and improve revenue.
• Make and record a detailed plan for the next week, month and three months and conduct regular stress testing of those plans.
• Make in time decisions

How can we Reddy Charlton help?

During this Covid-19 crisis, Reddy Charlton Solicitors are eager to support, encourage and guide your business. If you have any queries or seek further information on the impact on company finances and the duties of directors or any other area of commercial law, please contact Paul Keane at pkeane@reddycharlton.ie Elaine McGrath emcgrath@reddycharlton.ie