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This article will discuss the main responsibilities and actions of directors whose companies face financial problems in connection with the coronavirus. Given the global situation, many companies decide to cease operations, but some companies, being on the verge of bankruptcy, still continue their activities.

Please note that IQ Decision lawyers are ready to provide legal advice on the directors duties and responsibilities during the coronavirus pandemic period.

Even under ordinary conditions, it is not always possible to determine when a company is approaching a bankruptcy, and now, in the conditions of an unstable business environment, this seems next to impossible.

The revenues of many companies are declining, there is uncertainty as to when the existing restrictions will end, and what restrictive measures will be introduced over time. Many entrepreneurs have questions whether it is possible to expect support from the state or whether they should rely solely on their own resources, how to continue to operate in such a difficult financial situation and how to avoid bankruptcy of the company due to coronavirus pandemic.

This article provides an overview of some practical steps company directors should take in order to prevent bankruptcy, given all the risks associated with the global situation.

Practical steps

In case the company faces the risks of ceasing operations, the directors need to take practical measures listed below.

  1. All actions and steps of the director should be recorded clearly and in full detail. This is necessary to prevent misinterpretation of the actions of a particular director and to avoid misunderstanding.
  2. Meetings of directors should be held on a regular basis to discuss the company’s financial condition and assess the reasonableness of the actions taken by the directors. Recording of each meeting of directors is required.
  3. Organizations comprising several companies should hold meetings for each company separately, with the interests of the respective company and its creditors taken into account.
  4. Get comprehensive legal advice on directors responsibilities and check if it is possible to obtain state assistance, as well as start a discussion about the need to communicate information about the financial situation with the insurance company.

If you need advice from a lawyer regarding the directors duties during the coronavirus pandemic or if you need legal advice on obtaining state assistance during the coronavirus period, do not hesitate to contact IQ Decision specialists.

Responsibilities of Tor Managers

Company success is a personal responsibility and top objective of a director, as well as all shareholders as a whole. Therefore, he must make informed decisions and treat all members of the company fairly, taking into account the opinion of employees, company business relationship, and its reputation.

It is worth noting that IQ Decision seasoned specialists offer a consultation on revising the contract between the employer and the employee in order to protect themselves from the risks associated with the coronavirus. Our experts will also consult on how to amend agreements with partners in connection with COVID-19.

However, there may come a time when the company bankruptcy is inevitable. At this stage, the principal responsibility of the director is stay on guard of the company creditors’ interests. The person in charge must also take all reasonable measures to reduce losses.

Please note that IQ Decision lawyers can accompany your company in bankruptcy litigation in the courts of London or in the mediation process in the UK.

Potential insolvency

A company is considered bankrupt when its assets are insufficient to pay off debts and other liabilities and expenses. At the same time, the activity of a company whose purpose is to deceive creditors or otherwise mislead them is considered illegal (fraudulent). Such activities are subjects to criminal pursecution.

Insolvency is determined by the net assets of the company. If there is no shortage of net assets of the company during the corresponding period of time, then the bankruptcy petition is not considered.

The ability to repay debts as they mature is an indicator of solvency, but the director should still be aware of the financial prospects of the company. In the current uncertain economic situation, it is extremely difficult to predict the future company activities and its solvency. 

However, when potential bankruptcy is ahead, the company may encounter a situation of disqualification of the director, when for a certain period of time the director cannot perform his functions.

It is important that the director, faced with a possible insolvency of the company, should not give preference to one lender over another. For example, a company should not take on new debts to new lenders without paying off old ones. The preference of some lenders over others can cause obvious damage to the company and entail accusations of the director of fraudulent activities and lead to further company liquidation.

Please note that IQ Decision professionals will advise on the revision and amendment of the company's statutory documents in order to take into account risks associated with coronavirus pandemic that had not been foreseen before.

How to deal with company insolvency 

The court, considering bankruptcy cases, takes into account the following types of transactions completed by the company shortly before the insolvency:

  1. Undervalued transactions.
  2. Preferential transactions.
  3. Extortion credit transactions.

If you have become a party to the common law bankruptcy dispute, IQ Decision lawyers can accompany your company in a bankruptcy lawsuit in London or in a pre-trial settlement in the UK.

When to expect government assistance?

Of course, the situation with providing state aid to companies that are on the verge of liquidation or experiencing financial difficulties in connection with the coronavirus has to be monitored on a daily basis.

For example, in the UK, assistance is provided to small and medium-sized businesses in connection with the coronavirus, in particular interest-free loans for the first six months, and for large companies, the Bank of England has developed a financial support scheme for the coronavirus - “the Covid-19 Corporate Financing Facility ". As for companies engaged in retail trade and operating in the leisure sector, they can count on government support in the amount of £25,000 and other benefits.

The European Union Commission has launched a support program anticipating that countries, including the United Kingdom, will be able to provide grants to companies experiencing financial difficulties in connection with the coronavirus pandemic. The EU Commission has also allocated £140 million for research activities connected with treatment of Covid-19.

Please note that IQ Decision lawyers are following the latest developments in connection with the coronavirus in the UK, therefore they can provide advice to companies on obtaining state assistance in common law and international law.