Preparing for any business scenario in uncertain times

09 July, 2020 by The Shout Team

Pubs and other hospitality businesses have taken massive trading hits during the COVID-19 crisis, it is a crucial time to take stock of your business’ financial status. This could include looking into different restructuring options with some independent, consultative support.

Pubs, bars and restaurants all over the country have taken big hits to their P&Ls over the last few months and it seems the pain is not over despite restrictions easing across the country. In recent weeks, we’ve seen Victoria tighten trading restrictions once more, and reintroduce shutdowns on the local level in an effort to curb another spike in coronavirus cases. It’s a stark reminder that this crisis is not over and will continue to throw some trading curveballs for quite some time to come.

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While those businesses which were in good financial positions before the crisis will likely weather the storm, many hospitality businesses will find themselves under a lot of financial pressure the longer it continues.

As such, Garth O’Connor-Price, Principal of Restructuring & Insolvency at William Buck recommends gaining a deep understanding of the company’s financial position and your rights and obligations as a Director in times of financial distress. This understanding will allow you to explore the different regimes you can enact for your business to either help it weather the storm before returning to solvency or create the best possible outcome for all stakeholders when a business is no longer financially viable.

Safe harbour v voluntary administration

In tough times, the director of a business may need to consider some external guidance to get its business back on track. Mr O’Connor-Price suggests that in the context of a ‘black swan’ event like COVID-19, enacting safe harbor provisions can help a business weather an uncertain period in the hopes of returning to solvency. There are several ways in which a restructuring expert can help a business through safe harbor provisions.

“The starting point is whether a plan leads to creditors being in a better position than if the action wasn’t taken. If a Director believes, for example, this can be achieved through changing the business model which requires increased working capital or additional investment, we could focus on supplier management and communications to obtain better trading terms or on securing additional financing or an alternative type of financing to build a bridge for that company to make it through to the other side of this pandemic,” explains Mr O’Connor-Price.

“A safe harbour compliant turnaround plan can create certainty for the director to take prudent risks to reinforce their business and execute whatever the plan may be to recover.”

It’s important to note that in order to enact safe harbor provisions, certain criteria have to be met, including having engaged a qualified advisor, being up to date with all employee obligations like superannuation and being up to date with ATO reporting.

Where a business has suffered a longer, more gradual decline, placing the business in voluntary administration may be the better solution. In that instance, an independent appointee will take control of the business and makes an assessment of the best outcome for creditors of the company.

When should I consider enacting a Safe Harbour regime?

Through all the uncertainty of this crisis, it can be difficult to know whether the status of a business is to be expected in the current circumstances, or if it’s in trouble. Mr O’Connor-Price suggests that there a number of signs for when a Safe Harbour regime should be considered.

These include:

  • Falling sales, plus not having enough cash to meet your liabilities
  • No realistic forecasts of what your business is likely to do in the next 6-12 months
  • Creditors not being paid within normal credit terms; particularly critical creditors such as landlords
  • The director/owner not drawing a salary

More urgent signs include not paying superannuation, suppliers ending the relationship with your business, and a high turnover of staff.

Getting the help your business needs

Regardless of whether your business needs some minor restructuring or funding, or whether it is in serious trouble, William Buck can help hospitality operators through this crisis. For viable businesses, they can help through safe harbor provisions.

“By working in conjunction with the director, we help eliminate uncertainty. We help the director focus on the situation for the creditors, because their support is going to see the business through the other side of whatever crisis is facing the company.”

If the crisis faced by the business is deeper than temporary issues created by COVID-19, William Buck can help via a Voluntary Administration, which creates a statutory moratorium against creditors enforcing their rights and provides breathing space for a Director or Owner to put forward a restructuring proposal to address the company’s insolvency.

“Our job in that situation is to make the landing as soft as possible for the business, consider the interests of the creditors and maximise the return on the company’s assets, using our expertise in the hospitality field, and drawing on the different areas of expertise within William Buck.”

Find out more on how William Buck can see your business through this crisis here.