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Scottish directors need to act now to avoid 'insolvency' meaning business closure

Gordon Hollerin, a Partner at Harper Macleod and one of Scotland's leading restructuring and insolvency lawyers, has urged directors of Scottish businesses to use the full extent of UK insolvency laws to avoid 'inevitable' business closures in the coming months.

Hollerin was part of the Harper Macleod team which successfully helped High Street giant M&Co restructure, the latest in a number of such moves in recent months.

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He said: "Current and future economic conditions resulting from the devastating effect on many businesses of the Covid pandemic seem very likely to result in a huge increase in the number of insolvencies in the coming months. Throw in the possible disruption to many businesses caused by a no-deal Brexit and it's difficult for even the most optimistic of commentators to see the future for UK businesses as anything but bleak

"Directors of many businesses may already be bracing themselves for the inevitability of insolvency resulting in closure of their business and redundancy for all employees once current Government support measures come to an end. But this outcome is not inevitable and it's vitally important for the UK economy that directors understand this."

Hollerin highlighted the fact that UK insolvency legislation now provides businesses with a menu of options which enable distressed businesses to be restructured and survive rather than be liquidated and close.

Processes such as pre-pack and light touch administrations, company voluntary arrangements, standalone moratoriums and restructuring plans are available can all, in the right circumstances, offer businesses a lifeline to survival and the prospect of future growth and prosperity with business and employment preserved.

Hollerin added: "The prospects of a distressed business being successfully restructured and saved through the use of the right process are particularly strong when, as here, the distress is caused by external factors outwith the control of management rather than any failure in the business itself. The key action for directors is to take expert advice early and then to act on that advice. If directors do that rather than wait for the worst to happen a positive restructuring can be achieved.

"At Harper Macleod we have had recent experience of working with businesses which have chosen to do this. A 15-strong legal team advised on a restructuring exercise which saw retail fashion chain M & Co save 2300 jobs and more than 200 stores, as well as the rescue of its pension scheme. The team advised on all legal aspects of the restructuring exercise including property, employment law, commercial contracts and intellectual property. The firm has also been involved in a number of other successful restructurings over recent months which have produced similar positive outcomes."

Impending causes of company failure

Some of the main impending causes of company failure are:

  • At the end of September the temporary suspension of the application of the law on wrongful trading, under which directors can incur personal liability if they are judged to have continued trading once there was no reasonable prospect of avoiding insolvency, was lifted while at the end of December the temporary suspension of winding up actions by creditors against debtor companies will come to an end
  • In October the CJRS, or furlough scheme, which has protected the employment of millions of workers who would otherwise have been made redundant comes to an end leaving businesses in the position of utilising the new job support scheme and taking back on a part time basis employees whose services may not be justified by current business demand or losing them and incurring costs of redundancy
  • Further down the line deferred taxation will require to be paid, outstanding rent on leased business premises will be due and bounce back and CBILS loans taken out by businesses will be repayable, with fears growing that this will not be possible for many businesses.

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