Insolvent trading safe harbour: What does it mean for business turnaround strategy?

It’s great that the new insolvent trading safe harbour law is now in operation for company directors.

The intent of the safe harbour is to protect directors from insolvent trading liability where they act responsibility and take a course of action that is reasonably likely to lead to a better outcome for the company and the company’s creditors as a whole.

This should be a big plus for you if you are working on a business turnaround strategy, as it provides an extra layer of protection that was not there before.

Insolvent trading safe harbour: What does it mean for large companies and SMEs?

We believe that the establishment of the insolvent trading safe harbour will be great for professional directors of large and public companies to preserve the economic value of a company and continue with a business turnaround strategy.

The changes will also be helpful for SMSs but to a lesser extent. The matrix of personal liability for SMEs is quite different to that of a large or listed company. Suppliers and banks usually require directors’ personal guarantees and cross-collateral security for SME directors, which pushes the commercial risk of doing business back on the director rather than the credit provider.

How do the changes effect business turnaround strategy?

A business turnaround strategy can still be implemented – but SMEs require different techniques and a different approach to stakeholder management to large company’s strategies.

One single truth still applies to both types of organisations though: the sooner a director can seek advice before the company gets to crisis stage, the higher the probability that the business turnaround strategy will be successful.

Obtaining advice early from a qualified turnaround expert should be the number one priority: ideally, this is when the company is experiencing persistent operation weakness but cash is still available.

Unfortunately, some directors seek advice too late – when the company is already in major crisis: when the company’s operation weakness is systemic and cash is about to run out or has run out. A successful turnaround in a crisis is much harder to archive but still not impossible.

Directors must be vigilant in recognising underperformance and taking strategic action to address the true cause of the underperformance early before it turns into a distress and crisis situation.

Contact the team at Rapsey Griffiths today to discuss the key requirements for directors to have access to safe harbour.

You can also refer to our video on 3 steps to help your business survive here: