Identifying The Risks

During a turnaround you will continue to have all your normal responsibilities in respect of your business concerning, for example, health and safety and environmental legislation, as well as for keeping accounts and tax records (and, for directors, your statutory responsibilities under the Company’s Act for filing accounts and completing an annual return).

For a business in difficulty, some of the normal business responsibilities and risks can become especially acute, and a particular area to be aware of is employment law. In turning your business around, you will undoubtedly need to make changes that relate to people, how they do things, who does what and even who will still be working for you at the end of the process.

However, employment law provides employees with significant ranges of rights that can be enforced through employment tribunals, potentially at significant cost to your business. You need to be aware of these and you will need to manage the process of dealing with employees carefully.

When dealing with a business in difficulty, however, there are two particular areas of risk to be aware of and to manage:

Dealing With The Strain

The sorts of basic fears we all have in varying degrees have already been touched on, and these clearly become important in a business in difficulty (see Figure 46).




The fact is that, unless you absolutely thrive on seemingly impossible challenges (the blacker the better), having your business get into difficulty is going to be a stressful, depressing, frightening and difficult experience that is going to put a strain on you, your family and your employees.

You are the most important resource in restoring your business. Take care of your own health too, and get whatever help you need.

You need to recognise these as valid, appropriate reactions and emotions. (If you did not get upset about the fact that your business is in difficulty, what does that say about you and your commitment to it?) But in recognising this you must also prevent these feelings from overwhelming you and preventing you from taking action, and you must preserve your own mental health.

You are the most important resource when it comes to restoring your business to health. If you don’t do it, no one else will do it for you. The surest way to guarantee your business will fail is for you to give up trying to save it because it is ‘all too difficult’, ‘there is nothing I can do’ or ‘I just can’t cope’. If you are feeling depressed or stressed, see your doctor to obtain professional help to get you through this period.

Insolvency-Specific Risks

The key risks directors should be aware of in the event of a company failure are summarised in Figure 47.

For most of these risks, directors must be taken to include not only formally appointed directors but also shadow directors.

The following are the basic steps you should take to protect yourself from any insolvency-related action. You should make sure you are able to show that you took the appropriate steps:

• in the light of your knowledge at the time; and
• to ensure that your knowledge was as good as it could be.

 

You do so by demonstrating that you have:

• Prepared and maintained accounts, trading results and forecasts.
• If in any doubt, taken professional advice about whether you should continue to trade, and about any major proposed transaction (e.g. refinancing or selling major assets). For referral to an appropriate local advisor try www.turnaroundhelp.co.uk.
• Held and minuted board meetings to record decisions and the basis on which they were made (i.e. the forecast and professional advice received).

 

Remember to keep copies personally of all such documents.