With the door closed on 2020, directors no longer have the protection of the “COVID Safe Harbour” insolvency rules put in place to deal with the impact of the pandemic.
These rules, which absolved directors from personal liability if their businesses traded while insolvent, have been replaced by legislation that includes a new, streamlined SME restructuring process that came into force on January 1.

What’s changing?

  • As of January 1st, directors no longer have the protection of COVID Safe Harbour. This means if a company with debts and due payable is not able to pay, they are technically insolvent, and its directors are at risk for debts incurred by the company.

Why it changing?

  • To make restructuring a less complex and less expensive process for many businesses. However, SMEs should be aware this will very likely have a negative impact on cashflow.

What do company directors need to do?

  • Talk to a professional about the consequence of restructuring
  • Be aware of the potential cash flow impact
  • Find funding that will assist in this situation
  • Put the funding in place now – before you need it

The role of trusted advisors

An accountant will record and review your overall financial situation and provide recommendations for improving the health of your financial books. They will have relationships with banks and alternative finance providers and be able to connect you with the right solution for your business

Finance brokers
A finance broker will help to review your current finance options and identity new funding opportunities to assist in business growth or refinancing.

Insolvency practitioner
An insolvency practitioner will help in complex situations or when companies are facing acute financial stress. A solution may involve a company restructure, in which an insolvency practitioner will look for a finance provider who can help turn the business around.

Finance providers
A finance provider can directly help you find the right funding solution for your business, taking in to account your company size and stage in the business life cycle. This could be a bank, a fintech or an alternative financier like ScotPac.

What’s the solution?

  • Having a funding solution in place will give businesses the best chance of turnaround success. There are many restructuring solutions available that can be established quickly and without red tape. Funding such as Invoice Finance will be in demand as this type of finance provides business owners with quick access to cash flow, using outstanding sales invoices as security instead of the family home.
  • Our FactorONE product is a lending solution suited for this environment, providing access to funds within 48 hours and a low-document application process with no property security required.
  • We have the ability to lend higher limits (over $2 million) and SME borrowers have the security of the trust and reliability that comes with ScotPac having funded the small business sector for more than 30 years.

We’re all willing 2021 to be a kinder year to the small business sector than 2020. However things pan out, it’s important for SME directors to be prepared.

Even if a small business is not at the crisis point now, acting now to get in place a suitable style of funding means it is ready to draw down from, if and when the need for restructuring arises.