Hard times?

With higher interest rates, higher debt burdens and a higher pound, is it conceivable that the long run of economic growth in UK Plc is about to hit the brakes or at least go into lower gear? Insolvency practitioners and litigators, still reminiscing about the good old days of the recession, are rumoured to be looking more cheerful.

Whether or not such prophecies of doom are justified, well run businesses which anticipate adverse conditions are always in a better position to weather an economic storm and there are some useful legal tools which may assist:-

  1. Standard terms of business – at a time when good cash flow is essential, you need to build into contracts – and enforce – your credit terms and your right to charge interest for late payment. You need comprehensive retention of title clauses in order to put you into a position to recover goods if a customer gets into trouble. You also need to establish clear limits on your own liabilities if something goes wrong and someone is looking for a scapegoat.
  2. Security – if your business has made loans – especially inter company ones – or given long term credit you should ensure that adequate security was given to you at the time, so that you are not the last in line as creditor to an insolvent payee.
  3. Property – if your business premises are leasehold you should seek maximum flexibility by taking shorter leases or alternatively leases with tenant only break clauses and containing reasonable terms to enable you to sell the lease on.
  4. Employees – you should always have written, up-to-date and comprehensive contracts of employment with excellent HR backup, so that if downsizing becomes necessary in a difficult trading environment you can deal confidently with redundancy issues on a sound basis.
  5. Constitutional – hard times can sometimes be the catalyst for executive exits or implosions. Your constitutional arrangements, (including Shareholders Agreement), should be checked to ensure that they are adequate to deal with such issues.
  6. Borrowing – you should review your banking and factoring arrangements, especially personal guarantees, which of course are likely to be called in when circumstances are adverse.

Finally, if your business is already in trouble, seek professional assistance without delay. Offences which you may be committing unwittingly, such as wrongful trading, carry serious criminal as well as civil penalties.

Andrew Fleming, Partner