Hopefully you and your business enjoyed a good Christmas period and trade proved to be brisk. The overarching view would appear to be that results on the high street have been mixed, but with many retailers finding that discounts have driven sales. As a result, some businesses will be sitting on what appears to be a healthy sum in the bank, even after paying the Christmas quarter day rent, but beware! Without wishing to be a killjoy, if you think cash has been tight, don’t be complacent about your apparently happy situation. Be wary about how you spend it. This is particularly so when paying dividends, re-paying directors loan accounts, or bank overdrafts if a personal guarantee has been given to the bank by the directors. When a company is insolvent, or is verging on insolvency (which may not be that obvious), there are circumstances where a director may be found personally liable to pay money to the company. This includes taking a payment in preference to other creditors and trading the business on, when steps should have been taken to put it into Administration or adopt another insolvency measure. If you can see the Company may become insolvent in the future, the current positive cash position may not protect you. Here are some useful tips for directors, which are good management and may help to protect against claims, where the Company’s cash in hand may be good now, but could become tighter later:

• Don’t assume because current cash is good, things are OK, if your cashflow shows the cash will run out in the foreseeable future
• Continuously evaluate the current and foreseeable financial situation of the company by ensuring accounts and forecasts are up to date.
• Make sure your cashflow shows you can survive for an extended period
• Hold regular board meetings to monitor the financial situation, and keep comprehensive board minutes when paying out larger sums of money.
• Look after the assets of the company so as to maximise their value, avoid loss of key assets and carefully minute disposal of assets with the reason for doing so.
• Seek professional advice, legal and/or financial if in any doubt.

By Gavin Pickering, Partner at stevensdrake