Insolvency
Unlike the UK, Guernsey has not taken steps to temporarily suspend wrongful trading provisions for the directors of those companies entering into an insolvency process as a result of the COVID-19 pandemic. However, a number of measures are being considered in the Bailiwick on the recommendation of local insolvency practitioners and we shall report on any forthcoming changes as they are announced.
Here are a few of the more frequent questions that we are being asked about insolvency, in light of the current economic climate, to provide some guidance in the meantime:
How do I know if my business is insolvent?
A business will generally be considered insolvent if either the value of its liabilities (unpaid suppliers, Revenue Service tax bills etc) are greater than its assets (cash in bank, value of stock held etc) and/or it doesn’t have the available cash to pay its bills as and when they fall due for payment.
What should I do if I think my business is insolvent?
Time is of the essence in this scenario, so be proactive and consider what the options for the business might be sooner rather than later. Draw up a cash flow for the next 3-6-12 months to work out where the pinch points are and what the solutions might be.
You’ll need to think about the means of getting through the current shortfall. Talk to your customers/suppliers and see whether they can help with your cash flow in the short term. You can also consider whether there are any sources of funding outside of the business e.g. director, shareholder or family member loan, that might be available to get the business through the tough patch.
Your accountant will be able to advise you on the options available for your business or point you in direction of someone who can.
I am a director of an insolvent business, what should I do?
As a director, being aware of all existing financial obligations is essential. It may sound obvious but having up-to-date and relevant financial reporting is critical if your business is facing insolvency because this is where you, alongside your professional advisers, will be able to identify opportunities to intervene.
Obligations to lenders, such as banks will need to be assessed against the feasibility of meeting any debt arrangements in place.
Sometimes, restructuring the company and its trading operations can be an alternative.
If you are concerned, then act quickly and seek professional help to devise a financial plan to save the business for the future.
How can BDO help?
We have an active insolvency practice at BDO and work in partnership with other professional advisers to establish a clear way forward. Our professionals are closely monitoring government initiatives to ease and assist with cash flow on a daily basis during this time. If you have any questions, please contact a member of our team.
As a global organisation, BDO’s expertise here in Guernsey is actively reinforced by our global capabilities across 167 countries which is how we support the wind down and liquidation of corporate entities held within company structures across borders.
Services
- Corporate insolvency
- Contentious insolvency
- Corporate streamlining
- Restructuring and the winding up of companies, foundations and LLPs
- Tax, compliance and reporting obligations