Firms urged to change structures before it's too late

Mar 25 2009 by Tom Scotney, Birmingham Post

Business owners need to act now by changing their company structure in order to protect themselves from the continuing economic downturn, a Birmingham owner-managed business advisor has said.

Many business owners have found themselves in financial difficulty because of the financial downturn, with many unsure how to operate, as they may not have had experience of managing a business through a recession before. And Henry Briggs, senior partner at chartered accountant Haines Watts, said last minute planning would be too late because transactions undertaken within two years could be set aside by a company liquidator. He added it was important to take action and improve the firm’s structure before things got more difficult at a company.

He said: “Now is a good time to look at whether a company structure – which has probably evolved over a period of time – is best suited to survival and protect the owners’ assets. Even if the business is currently trading satisfactorily, there may well be unforeseen challenges to come and protective measures taken now could ensure survival in the long term.

“Obvious considerations such as separating significant assets, like property, from the trading business are one area but also ‘hiving down’ punitive liabilities to subsidiary companies, may also protect other assets. Where a group structure already exists, then group balances and guarantees should be reviewed as well.

“Where there are loans owing to directors or director pension schemes, these should also be secured in some way on the company’s assets. Even a second charge on assets, ranking after the bank’s security, will at least mean that the loans are higher up the food chain than unsecured creditors,” said Mr Briggs.

“Unfortunately though, most business owners prefer not to consider the possibility of failing but with more economic challenges in the pipeline, it’s best to plan for the worst. These are not actions that can be taken at the last minute. This all a bit like insurance: better to take it out now and sleep easy than worry when it is simply too late.”