By James Daniel, Founder and Principal on 05/05/2022
The dumbest moves
If your company is trading merrily and with or without warning a tectonic market shift rocks its business to the core, suddenly the downsides of business risk loom large.Many directors panic because they fear that their personal financial assets and wellbeing have come under threat. All kinds of horror images flash into their minds. A sense of loathing grips them. They think their life from that point on will tumble to one new low after another.It is at these times such directors become irrational, erratic, resign and take flight losing the excellent opportunity to influence a turnaround or soften a hard landing.If a director can find the resolve to stiffen themselves up and keep going, their next horrible mistake is to directly take advice from an accountant whose advice is inexpert and unprotected by legal professional privilege. Depending upon the nature of their advice and how it is recorded, their advice may become entirely counterproductive by laying down a paper trail of disclosable evidence that could prove to be dynamite in the wrong hands when their company is undergoing a formal insolvency process.
Worse still, the accountant might become just as spooked as their client director and ignorant of the train of events they might be setting in motion, line up their client director with an insolvency accountant under some compromising referral arrangement. Often that introduction means the end is nigh. They may in fact be the devil in disguise. That is because the business model of an insolvency accountant sees them mounting a charm offensive early on, only to quickly plunge the company into a formal insolvency process for their own benefit. That process often ends with the client director in tears losing the company, its business and being sued for breach of duty, insolvent trading, etc. and becoming bankrupt.
The smartest moves
In such circumstances cash is king, time is gold and brand-new independent expert legal advisors who instruct brand-new independent expert accountant advisors are essential.At this delicate juncture, the lawyer must be the conduit to the information flow to and from the company and the client directors and to and from the accountant.All advisors must urgently meet all the directors, CEO and CFO (not inside a boardroom meeting and must avoid minute taking) for as many hours or days as it takes to properly understand the market shift and the factual, accounting, and legal issues. An action plan moving forward, and task allocation must be documented by the CEO, CFO, the accountant and the lawyer for board approval and action.
Objective
If appropriate, the objective is to avoid a formal insolvency process, achieve a turnaround with transparency and the approval of all company stakeholders and preserve value as much as possible.No meat stripping vultures allowed!
