It is challenging for many businesses at the moment. In addition to commercial disputes increasing, redundancies and cash flow issues may also be on the horizon. In this edition of Insight, B P Collins’ lawyers advise on key actions that struggling businesses may be able to take.
Corporate and commercial
Have an open conversation with your customers and suppliers about how your payments could be adjusted. Can suppliers extend your credit and can customers pay more quickly to help your cash flow. Will the bank adjust loan and overdraft terms to help? Think of these discussions from the perspective of the other party. It is probably better that they receive some payment rather than nothing at all; and reputationally, do they really want to be known as helping to run your otherwise viable business into the ground? The answer is probably not, so use this to your advantage when having these necessary discussions.
You can borrow money to keep afloat during tougher times, but before you do, it’s important to ask yourself if your business is genuinely viable, now and into the future. It’s true in any climate, and even more so in a challenging economy, that you should offer what the customer needs, within the realms of what’s permitted. A sluggish economy doesn’t mean that people aren’t spending any money but it may mean they’re spending less though. So if they’re spending money on something – what are they spending it on and can you pivot your business?
Face problems head on
There tends to be a stigma to admitting a business is in trouble and a desire to save money by avoiding the cost of advisers. But now is the time to seek the advice of professionals. In particular, insolvency practitioners and corporate recovery specialists can be extremely helpful when your business is under pressure. There could be scope to restructure your business and its finances or if you can’t save all of it, they may be able to help you to save at least part of it.
Before you make any changes to your business, it is vital that employment contracts and relevant policies are up to date. It is also important to have a clear business case which can help in the defence of subsequent employment tribunal claims that might arise.
Alternatives to redundancy
Reducing the staff count may not be the best idea for the longer term, as it could prevent your business from being able to make gains when the economy recovers. You could try to retrain an employee in a growth area of your business rather than make them redundant, which helps to avoid the cost of recruiting another member of staff. Consideration could also be given to alternative ways of working. For example, if more staff work from home, costs could be saved on office rent.
Letting staff go
Should redundancies be required, it is worth ensuring that those responsible in your business for reducing headcount are up to date with the laws relating to redundancy. Although employees would not generally have the right to bring an ordinary unfair dismissal claim if they have less than two years’ service, they may still have grounds to pursue other claims, including a claim following an employer’s failure to collectively consult in mass redundancies. It is therefore recommended that you take advice at the outset before moving forward.
Union recognised employers should engage early and constructively with trade unions when redundancies are being considered. This can be a challenge where the relationship is strained but the risk of industrial action, whilst a last resort, keeps minds focussed and should encourage the parties to reach agreement on the issue of the day. This is more likely to be achieved by discussing matters in a full and open way at an early stage.
A large proportion of cases settle well before reaching the courts. This is primarily because there is no such thing as a dead-cert case for either party. Therefore, getting to a pragmatic settlement, as soon as possible, can usually be the best solution and the most cost effective.
Pass all information to your lawyer
When writing to the other party to explain your side of things; including evidence is key, so ensure that you pass all the relevant information to your lawyer. Only then will they know what they are working with and also avoid any last-minute surprises.
It is also worth considering mediation as soon as both parties have laid their cards on the table as it can be a powerful way to resolve disputes. Firstly, it speeds up the whole settlement process because everyone is in the same (virtual or real) room, which usually encourages a swifter outcome (and therefore saves money and reduces stress). Secondly, there is often a large measure of bad blood between the parties, and it can be cathartic for each party to explain how they have been emotionally hurt by the other. Once explained, it is often easier for both parties to look at a dispute more rationally.
There may be a reduction in need for office space, which now needs to be disposed of. However, as our commercial property solicitors will advise, the disposal of surplus office space is not that simple, especially if the lease does not provide for an early termination.
Read your lease
Always start by reviewing your existing lease, which B P Collins’ property team can help with, as this will confirm your existing assignment and subletting obligations and restrictions.
Talk to your landlord
One option is to negotiate a surrender of the surplus space or an early termination of the lease with your landlord if you no longer require the space. However, it might be the case that your landlord is unwilling to take it back because it may be difficult to rent out the space again, or will consider doing so, but only for a fee or change to your existing lease terms.
Another option is to sublet the space, which would enable you to recover some of the financial losses on the space that you will not be using. However, there are often restrictions on sublettings and not all leases permit sublettings of part. Always read the lease.