Engaging with staff and creditors – how firms can cope with unprecedented times

Published in the Sunday Independent Business Section on 15 March 2020

The announcement of school closures and other restrictions on public gatherings by the Government have the potential to create significant financial difficulty for businesses. Those businesses that are reliant on customers coming to them, especially in the retail and hospitality sectors are likely to be most vulnerable. Those businesses that have the comfort of cash reserves should be able to weather the storm. However, businesses that are living hand to mouth are less likely to be able to meet their day to day obligations. If these businesses are to survive then it is essential that they are proactive about cutting their outgoings so they can survive after the coronavirus pandemic has ended.

Businesses that temporarily need to reduce their staff costs may need to consider putting staff on temporary lay-off or short time. These are arrangements that fall short of redundancy, but still enable employees to collect social welfare benefits whilst they are not working. If employers decide to go this route then it is important that they follow the correct procedure, as otherwise they could still be liable to pay wages, and their employees would not be entitled to obtain benefits. Employers are obliged to give formal notice of short time or lay off by way of form RP9, which is available from the Workplace Relations Commission website (in the redundancy forms section). Where not all staff are temporarily laid off or put on short time it is necessary to operate the same selection procedures that would apply in a redundancy situation. Employees who are temporarily laid off or put on short time have the right to apply for redundancy instead.

Business owners should also contact their insurance brokers to see if they have business interruption insurance that might cover them for loss of income.

It is essential that business owners in difficulty engage with their creditors at the earliest possible stage to see if some accommodation can be reached. These might include landlords abating rent temporarily, banks deferring loan payments, etc. Certainly, the messaging from banks so far has been that they will be accommodating in so far as they can. Revenue as a general rule will agree to instalment plans with taxpayers who fall into temporary difficulty, however businesses that have had difficulty paying their taxes for an extended period are unlikely to be able to benefit from this.

When the dust settles it may be that otherwise viable businesses have incurred liabilities that they are unable to be able to trade out of. The prospects for these businesses are not necessarily bleak. It may be that their owners can avail of provisions in the Companies Acts to implement a scheme of arrangement whereby their liabilities to all creditors are reduced so that the business can continue. If business owners are to implement one of these schemes then it will be essential that they do it promptly whilst they retain the goodwill of their creditors and the memory of the events that created the problem are fresh in people’s minds.