COVID-19 – Owner Managed Limited Companies

It was discouraging for many company directors to discover that the support the Chancellor announced for the self-employed individuals did not apply to them.  Instead, it is understood that they will be eligible to claim support through the Coronavirus Job Retention Scheme and The Coronavirus Business Interruption Loan Scheme. 

Many owner-managed company director/shareholders pay small salaries and the balance of income as dividends. The scheme does not extend to dividends. Only the salary is relevant to the scheme. Such companies must have been paying a salary through payroll to be eligible for a grant.

In deciding whether to furlough a director in respect of their duties as a company officer, it is believed that the director will not be furloughed in respect of their statutory duties.  As a director of a company, you have a variety of fiduciary duties as set out in the Companies Act 2006. 

For most companies to continue, they will require someone to handle the on-going administration such as processing wages, bookkeeping, collecting debts etc.    If a company can close down during COVID-19 meaning that the director has no day to day employment only statutory duties, it may be that furlough could apply. 

Directors need to consider whether the 3 months saving of 80% of their salaries outweighs the benefits of the company to continue to trade during the COVID-19 crisis.

Other area’s directors may want to give thought to:

• Regularly monitor, review and update Financial Records, Management Accounts and Cash Flow Projections.  This will help to understand the financial health of the business.

• Check Insurance Policies.  Could business interruption cover help or key man insurance to assist to cover key workers absences?

• Whilst some businesses are struggling due to the outbreak of COVID-19, other businesses may be impacted less or indeed find that business is booming.  You need to understand the nature of your customers and concentrate on income from those organisations who may have greater access to funds in these trying times.

• Take Professional Advice – professionals can help you to assess various types of resources such as the Business Interruption Loan Scheme.  They can also assist with preparing financial forecasts and negotiating payment holidays if appropriate.

If you’d like any support in this time then please do not hesitate to contact the Brightshire team.