Following the new government guidelines introduced on Friday 27th of March, all non-essential businesses have closed but work does continue behind closed doors.
While the situation is changing at a rapid pace and the only thing that is certain is that none of us know where the economy will land, there are some practical measures that companies can implement to avoid insolvency.
1. Talking to the Bank
Following a meeting with the Minister of Finance on Wednesday 18th March, the heads of the State’s five main banks agreed to extend payment holidays to businesses affected by the economic crisis sparked by Covid-19.
Companies that are currently struggling with cash flow issues and other problems caused by Covid-19 should contact their bank as soon as possible to discuss the possibility of a moratorium on loan repayments during the coming months. These payment holidays could be the vital component that allows businesses to survive throughout the coming months.
2. Managing cashflow
Businesses should immediately look at ways to lower variable costs, delay any discretionary spending, extend payables, expedite receivables and explore alternative payment options within your supply chain.
For example, a conversation with your landlord should be initiated as soon as possible. Landlords of commercial properties will often be using rent payments to repay a loan. If you notify the landlord of financial difficulties, they may be able to obtain a freeze on those loan repayments during the coming months and they may then agree to a pause on rent payments also.
3. Using the available government supports
As you’ve no doubt read over the last week, the Emergency Measures in the Public Interest (Covid-19) Act was enacted on March 27th. This Act will help businesses survive through this unprecedented situation. All businesses should engage with Revenue to see what supports are applicable.
The most significant support is the Temporary Wage Subsidy Scheme – See our article on this here. This scheme is designed to help companies retain employees through the duration of the pandemic by paying a subsidy equal to up to 70 per cent of their take-home pay, to a maximum of €410 a week. There are, of course, terms and conditions. The employer must show they have lost at least 25 per cent of turnover and that they do not have the liquidity, or cash, to pay. The full details of this scheme will be published by the Revenue Commissioners once emergency legislation is passed.
Other supports include:
- The Credit Guarantee Scheme which supports loans up to €1 million for periods of up to 7 years. Applications can be made to AIB, Bank of Ireland and Ulster Bank. Eligibility criteria apply.
- Micro-enterprises can access COVID-19 loansof up to €50,000 from MicroFinance Ireland. Loans are available at an interest rate of between 6.8% and 7.8%. Businesses can apply through their Local Enterprise Office or directly MicroFinance Ireland. Some eligibility criteria will apply, and these can be found on the website.
You can find more information on these loans as here.
- The €200m SBCI COVID-19 Working Capital Scheme for eligible businesses will be available within the next week (at time of writing on March 23rd). The maximum loan size will be €1.5 million (first €500,000 unsecured) and the maximum interest rate will be 4%. Applications can be made through the SBCI website at gov.ie. Eligibility criteria apply.
- A €200m Package for Enterprise Supports including a Rescue and Restructuring Scheme is available through Enterprise Ireland for vulnerable but viable firms that need to restructure or transform their business
4. Reviewing insurance cover
Some insurance policies cover business interruption or employee compensation and Companies should review their policies to ascertain whether they have insurance cover for some of the losses that may arise due to COVID-19. It is always important to make any claims under an insurance policy promptly.
6. Reviewing Contracts
Some contracts may contain a force majeure clause which will allow a party to terminate the contract where an event such as a global pandemic has occurred. Even if the contract does not contain a force majeure clause, a party may still be entitled to terminate the contract in circumstances where it simply cannot be performed. Terminating a contract may lead to a dispute and possibly litigation. It is recommended to take legal advice before taking a serious step such as terminating a valuable contract.
7. Reducing staff numbers
The government have expressed a strong desire to keep people on the payroll as long as possible. It will be better for the economy in the long run. The Temporary Wage Subsidy Scheme has certainly made it easier for businesses to do that. However, it’s a reality that many companies will have to let staff go during this difficult period. Companies who have had to cease trading for example. For more on this please see our article providing guidance for employers on lay off, short time and redundancies. Short time and temporary lay offs, in conjunction with the Government’s Covid-19 Pandemic Unemployment payment will cushion the blow to some extent for many of those employees let go.
7. Trading through the difficulties
When a Company is experiencing financial difficulties, the directors of the Company have a statutory duty not to trade in a reckless or fraudulent manner. If a director believes the Company is insolvent and cannot pay its debts as they fall due but continues to trade, then the Director may face repercussions in the future.
If the Company is ultimately liquidated, the liquidator will examine the books and records of the Company and consider whether the former directors should be pursued personally for reckless or fraudulent trading.
Examinership is a process whereby court protection is obtained to assist the survival of a Company. An application can be made to obtain court protection for a Company from its creditors in circumstances where the Company is insolvent but has a reasonable prospect of survival.
An Examiner is appointed to the Company and his job is to assist the Company in restructuring and surviving. New outside investment in the Company is usually required for examinership to work. The main aim of examinership is to save jobs.
The government have implemented certain measures that will help cushion the significant blow to most Irish businesses. Companies need to take action now, leveraging the available government support, looking at outgoings, cashflow and insurance, among other elements.
If you’d like to discuss your options around insolvency, please contact our Insolvency Team today at [email protected] or 01 644 5800. We can arrange a phone or video meeting to discuss your issues.
About the author; Dermot McClean, Solicitor on the Insolvency Team.