Suzanne Knowles

The current outlook

New data from the Office of National Statistics, published on 5 May 2022, has highlighted the scale of some of the challenges UK businesses are facing. Unsurprisingly, rising energy prices and the increasing cost of other goods and services remain a key concern across a range of sectors. In particular, the data shows:

• Almost a fifth of businesses reported that their turnover decreased in March 2022, compared with the previous month.

• Nearly half of businesses reported an increase in the price of materials, goods or services bought in March 2022, with this proportion rising to 65 per cent for the construction sector and 77 per cent of businesses in the accommodation and food service industry. Around a third of businesses also reported their production and/or suppliers had been affected by recent increases in energy prices.

• Against this backdrop, more than half of businesses indicated they have been affected by price increases. Over 50 per cent of businesses in the manufacturing and accommodation and food services industries reported having to absorb additional costs, against an average of 38 per cent across all sectors.

• A number of businesses also reported a drop in domestic demand for goods and services in March 2022, including almost a quarter of businesses in the motor vehicle and accommodation and food service industries.

Faced with such challenges, there can be pressure on directors to adapt their operations and implement new strategies to weather an uncertain outlook. As prices rise, many businesses are having to give careful consideration to their financial position and explore different options for protecting cash flow – whether that includes refinancing funding arrangements, negotiating with creditors, making redundancies or other operational restructuring.

As a result, directors may find themselves having to make difficult decisions which can often have a significant impact on their employees, creditors and other stakeholders. At the same time, directors must be mindful of their duties. Where a company is experiencing financial difficulty, directors should be alive to the risk of personal liability and/or disqualification from acting as a director in the event of any breach of duty, such as for wrongful trading. The personal impact of these concerns should not be underestimated.

Finding the right solution

While the proportion of businesses absorbing price increases suggests a level of resilience across different sectors, there are undoubtedly challenges ahead. In these circumstances, early engagement with specialist advisers can be beneficial in helping directors understand their responsibilities and assess restructuring options.

What’s more, at Shepherd and Wedderburn, we recognise periods of distress can be difficult for directors to navigate and understand the need for them to look after their own mental health and wellbeing. This is why we have collaborated with Care first, a leading wellbeing services provider, to give the company directors we work with free access to a wellbeing assistance programme.

Care first offers 24-hour confidential counselling, information and support, with all calls answered by counsellors accredited by the British Association for Counselling and Psychotherapy. By facilitating access to Care first’s services, we aim to give directors access to the dedicated, expert support they may need to care for themselves so they are fully equipped, in turn, to make the best business decisions.

• Suzanne Knowles is a senior associate in Shepherd and Wedderburn’s restructuring and business advisory team.