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Empty streets, splintered families living in isolation and businesses struggling with all their might to keep going… No-one will forget the way our world turned upside down just over a year ago as covid took hold.
Running a law firm, the effects on me personally and the business were very limited, but I looked around me with real sadness and the upmost sympathy for those whose stories were very different. Shops closed, restaurants in darkness and pubs and other social places in silence. Yet, while that stillness took hold, the food for the table was still required, the mortgage met and other costs and expenses maintained.
The Government of Jersey helped a lot. The co-funding scheme was rolled out and many people who otherwise would have lost their jobs managed to keep their employment. Of course, that support scheme was limited and I have heard devastating stories of businesses which ‘fell through the cracks’ because they didn’t meet the criteria for support.
I was expecting a flurry of business on the brink to go bankrupt and see a lot more debt actions than actually transpired. Why didn’t that happen? Because it’s too early. The true financial effects of covid on business may be yet to come and may be more than 12 months away. At the moment, businesses may be struggling but managing. But, how long can that continue? What happens when payment holidays come to an end, and chickens come home to roost?
Pictured: "The true financial effects of covid on business... may be more than 12 months away."
The purpose of my column this month is to provide some simple advice to businesses and individuals who may be struggling financially.
First, as I have written before, companies must be very careful not to trade insolvently. It is illegal to do so.
Insolvent for these purposes means unable to pay debts as they fall due. Remember that and apply it. It doesn’t matter (for these purposes) if you have liabilities and insufficient assets to satisfy the liabilities. What matters is whether you can pay a liability when / as it becomes payable.
I can’t pay my whole outstanding mortgage at the moment, but it’s not due. The only part that is due is the next payment in about a month’s time. I can pay that (I hope). I am solvent. If you receive a bill which you have to pay but can’t, and so you ask for ‘terms’ to postpone payment, or pay by installments, and that is granted, then again you are okay. The payment date has now changed and isn’t due. What is not okay is if it is due, and that doesn’t change, and you can’t pay. You are now insolvent. If you continue to trade, you will be committing an offence.
I cannot stress enough how important it is to make decisions early on. Early decisions are good decisions. Do not fall into the trap of hoping things will get better. I fully accept, for some people things can turn a corner but you need to exercise care. It is so easy to hope, but hope in vain, and continue that downward spiral until things become hopelessly out of control and the devastation just increases.
Pictured: "Do not fall into the trap of hoping things will get better."
Get out early. How do you know when it’s time? Probably by asking a third-party. Take advice. Seek help at the Citizens Advice Bureau (they do great work). Speak to your bank manager. Maybe loans will be available. If they are, the bank probably considers there is hope. There are many resources, and you should make use of them.
If you are on the other side of the transaction and you are owed money, and your debtors are not paying, you also need to make early decisions. There is nothing wrong in helping a debtor, to an extent. But be careful: being too lenient may not be good for the debtor and moreover, may not be good for you. You have staff think of them too. If you don’t pursue debts, how will you function? If you can’t function, how will you support your staff? It is not pleasant when someone is down on their knees to press them for your legal entitlements, but sometimes it is the right thing to do for the ‘greater good’.
If you are unlucky enough to be served with a court summons in either the Petty Debts Court, or the Royal Court, do not ignore it.
If you ignore it, the plaintiff may well proceed to obtain judgment in default against you, and this will enable him or her to pursue you to legally enforce that debt. It will also affect your credit rating without a doubt. Instead, contact the creditor immediately and explain the situation. Try all you can to avoid a judgment. Plaintiffs in receipt of legal advice will normally act reasonably, and there is no sense in pursuing someone who hasn’t got the ability to pay. Instead, an arrangement in which they are more likely to receive payment, should be possible to broker.
Pictured: Do not ignore a court summons.
My concern is we are still to see the worst effects of covid on businesses in months to come. It will start off, here and there, in small pockets but will then become more prevalent. Perhaps more people out of work, therefore more people with less money, and less ability to pay, and so on. I hope it is limited when it happens. Moreover, I hope it doesn’t affect you.
But, if it does, take heed of the few pieces of advice in this column: act swiftly, do not ignore the situation, and go and get advice.
