Good corporate governance and directors' liability during corona crisis
Date: March 18, 2020
Modified November 14, 2023
Written by: Erik Jansen
Reading time: +/- 2 minutes
Date: March 18, 2020
Modified November 14, 2023
Written by: Erik Jansen
Reading time: +/- 2 minutes
On Tuesday, March 17, 2020, the government presented a new support package of measures to help you as business owner if you run into liquidity problems due to the corona crisis. Earlier I wrote here about the "old" measures where practical tips and also warnings were given. These tips and warnings also apply to these new measures.
The most important new measures for you as business owner are the following:
Times are tough for business owners and it will be difficult for many businesses to keep their heads above water. But this is not the time to bury your head in the sand or, on the contrary, to engage in reckless enterprise. The last thing you want is to be held privately liable as business owner, in the event of your company's bankruptcy.
Therefore, as business owner , take advantage of the opportunities currently offered by the government. Part of this includes requesting an extension of credit from your bank, possibly with a government guarantee. If you do not do so, you may be blamed for not having done everything possible to avoid bankruptcy.
Pay attention to who you do and do not pay. You are wise to make as few payments as possible when your company's bankruptcy is inevitable or even already filed. Some payments may be unlawful against other creditors because they are disadvantaged by them. In principle, as business owner , you are obliged to fulfill financial obligations entered into. Additional circumstances are required for a payment to be unlawful. Additional circumstances will particularly exist if you make payments to group companies or if you, as a director, have a personal interest in the payment.
Obligations that you were previously able to fulfill without any problems are placed in a different light by the current uncertainty. If there is a high probability that you will not be able to fulfill them, either waive them or discuss them with your contracting party. If not, you can be held privately liable for this as business owner .
There is a need to quickly understand your company's accounts receivable and accounts payable position. The accounts receivable position is particularly important given the expected liquidity shortfall. Despite all the hectic activity, stay in close contact with your debtors with the goal of collecting those receivables as soon as possible. In addition, it is wise to research new customers. To help you with that, Graydon, for example, is providing free business information reports until (for now) April 6, 2020.[see earlier post Erik Jansen]
Do you supply large companies or institutions or governments, which may have a little more meat on their bones? They often have long payment terms in their contracts or purchase conditions. Ask explicitly for prompt payment, if possible as early as the negotiation stage.
The possibility of deferral of payment offered does not alter the fact that as a director you may be or become liable for unpaid tax debts. It is therefore prudent to report inability to pay in addition to the request for deferral of payment. [Also read Erik Jansen's blog: Government measures to improve your liquidity due to corona].
Consult with your landlord about payment of rent payments. [Read Jeroen Brinkman's blog: Rent payments delayed by coronavirus?]
The figures on which you base your dividend distributions are cast in a different light by the corona crisis. You must therefore ask yourself whether these distributions are still justified.
Above are some points of interest that you as business owner should be aware of. It is going too far to discuss all the consequences, risks and opportunities of suspension of payments and/or bankruptcy in this blog. But you can always contact me for that.
As attorneys for business owners , we understand the importance of staying ahead. Together with us, you will have all the opportunities and risks in sight. Feel free to contact us and get personalized information about our services.