How to Employ Formal Restructuring Strategies to Stimulate COVID-19 Recovery

As a senior finance professional, working directly with clients and mitigating their financial position may consist of recommending formal restructuring strategies. Often administered by a licensed insolvency practitioner, maintaining a relationship with a reputable provider of company restructuring and insolvency services may be essential to present a suitable remedy to financially distressed business clients.

During the uncertain trading climate inflicted by COVID-19, businesses continue to fight their way to overcome company debts in the hope of eventually recovering from the pandemic. As shops open their doors following an unprecedented hiatus over one-year plus, company owners yearn for relief and hope to rebuild the foundations of their business. Without formal tools to assist recovery, many businesses may undoubtedly become insolvent.

According to St Louis Fed, the COVID-19 recession could push 47 million jobs into distress, tipping unemployment rates over 30%. An estimate conducted by the Federal Reserve shows that 67 million Americans are currently at risk at losing their jobs as the economic impact of the pandemic takes toll.

Tackling business tax arrears

Although the Internal Revenue Service (IRS) and Treasury Department extended tax filing deadlines, many businesses may still struggle to meet the next payment deadline. If you fail to make payment, the IRS will issue a failure to pay penalty, the amount of which will depend on the amount owed and your circumstances.

If you’re unable to fulfil essential financial obligations due to restricted cash flow, help with creditor affairs may be at hand. The most common creditor for businesses is typically the state due to outstanding business taxes. If you’re unable to make a full or partial payment, seek an affordable payment plan. The IRS may allow a short-term payment plan lasting 120 days or less, or a long-term plan lasting over 120 days.

In the UK, a Time to Pay (TTP) Arrangement can offer more time to businesses to pay tax arrears, as the name suggests. A TTP can grant the opportunity to divide payments into affordable instalments, typically over 12 months.

Revising payment agreements with creditors

Depleting cash flow and creditor pressure are amongst the wave of problems embattled by business owners. If your business can be rescued by revising outgoing payments to creditors, you should open up the conversation with creditors to renegotiate terms.

For creditors to agree to an affordable payment plan, the business must present realistic prospects of recovery. The decision ultimately lies with the creditor if they believe that the business can be rescued from financial distress.

In the UK, a Company Voluntary Arrangement (CVA) is a formal insolvency procedure that opens the doorway to negotiating affordable repayments with creditors.  If the recovery of the business is time-sensitive, a Fast Track CVA can help supercharge rescue, readying the company for a strong period of trading to rebalance the scales.

A Fast Track CVA is a time-sensitive insolvency procedure where creditor debts are restructured, following agreement from creditors in a fraction of the time of an ordinary Company Voluntary Arrangement.

Cash boost to spring businesses ahead of the game

If your business is accustomed to small loyal customers, complemented by occasional high-value contracts, it may require more cash flow to cater for larger clients. Without this, company growth may be restricted and the chances of attracting income at a faster rate may be decimated.

To enable the business to score larger jobs while financial health returns to pre-pandemic levels, business finance may be required. This can often give businesses the head start they require to stimulate growth, attract investment and reduce debt.

There are many ways professional intermediaries, such as accountants, financial institutions and legal firms can partner with service providers in the business recovery sector to complement their service offering. Protecting the financial health of companies is conducted on the back of joint up efforts between insolvency practitioners and professionals with a basic or comprehensive view on the topic.