These were the words of Mike Ryan Executive Director of the World Health Organisation when addressing a press conference at the start of March to discuss the appropriate governmental response to COVID 19.
In putting together the unprecedented support programs for businesses suffering the impact of COVID 19 lockdowns, the UK government has had little option but to adhere to these principles. They are welcome but their speed has left some (such as Start Ups, Scale Ups & Personal Service Companies) slipping through the safety net.
The Job Retention Scheme will be widely availed of and is essential in keeping companies afloat at this time. Other fixes available to suffering companies are small grants, which may not applicable, deferral of continuing liabilities (which will still be due) or finally the option of taking on further debt.
In the case of the latter option, there has already been controversy over the Business Interruption Loan Scheme (CBILS) and the interest rates and security sought by those accredited lenders who are providing it. Those lenders are reacting to concerns quickly and many advisors have offered their services free of charge in preparing applications. Still, the money from CBILS needs to flow quickly to be of use and Directors need to be comfortable with the concept that taking on further debt, which they will be responsible for repayment in full, will be wise at this time. All this is of course difficult enough, but even more challenging in circumstances such as lockdown where meetings are conducted remotely and documents signed digitally.
The next couple of weeks will be hugely significant for most businesses. Many will start to seek the agreement of their staff who were on PAYE payroll at 28 February to be put on furlough. It should be remembered that those employers must pay these wages first, before claiming back (up to the agreed limits) from HMRC. Furloughed staff cannot assist in generating cash flow once they are on the scheme.
Furthermore, cash collection will prove more difficult as traditional legal enforcement remedies are currently unavailable through court closures and moratoriums proposed under newly introduced insolvency legislation.
Existing financial covenants with lenders will need to be reviewed and if possible waivers and grace periods obtained. If funding is sought from other lenders through the CBILS, Directors will need to check if they require the consent of their existing lenders first.
The key to this whole process will be making informed decisions with the assistance of professional advisors and ensuring that any meetings held to make these decisions are conducted correctly and minuted properly.
Whilst proposed changes to the Insolvency Legislation should take away the risk of personal criminal liability from “wrongful trading” during this time, Directors must remain mindful of their statutory duties under the Companies Act – most notably, the duty to act in good faith and in the best interests of their company and its creditors.
Where there is no real evidence that the Director was considering these duties or where a large creditor is overlooked, the court will not examine the Director’s subjective understanding, but will look at how “an intelligent and honest man” would have acted.
For Directors going forward there are no “perfect” choices, but if the last month has taught us anything, indecision and inertia will not serve them well during this time if they wish to achieve “good” for their company.
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