The COVID-19 pandemic is putting unprecedented pressure on businesses and the situation is evolving rapidly. During this period of uncertainty it is, of course, important for directors to continue to monitor solvency – whether in the more critical immediate weeks or in the longer term.

The situation does not mean that all directors will automatically be at risk of claims of breach of duties, wrongful trading or other challenges, which could arise should insolvency be a realistic prospect at this stage or indeed become an eventuality.

Prudent businesses should already be taking a number of actions to avoid such a situation arising. These include:

1. Communicating effectively with stakeholders. This is critical. Do not assume that others will know what you are doing during this period. It is important that Boards continue to meet and document what steps they are taking, the progress that is being made and any changes that need to be accounted for. Similarly, creditors, employees and others need to understand your outline plan. If you are going to require the cooperation of those parties over this period, engage with them now.

2. Reassessing current financial models and identifying any viable financial rescue measures, including those announced by the UK and Scottish governments. Those measures that government has announced are not mutually exclusive. Some are available immediately without application, while others will require an application or specified steps to be taken. Such measures may well give you time to assess how your financial position may be improved and enable you to work on a revised business plan for the short to medium term. While acquiring additional debt as part of these measures may not be appropriate, seeking a capital repayment holiday, or investigating if there are any other informal arrangements that can be reached, whether with trade creditors or others, may work for the business.

3. Looking for opportunities to diversify services, simplify the business model or otherwise considering whether you can work smarter. Businesses should be looking at whether they can operate in a different way, or whether staff could be re-deployed to provide a different service. For example, does the business have any properties that are currently unoccupied? If so, could these be made available to provide an essential service for example emergency accommodation to NHS staff who require to self-isolate from families? Consideration should also be being given to whether there are non-essential costs that can be taken out of the business now, or alternative supply arrangements that could be considered going forward.

4. Being wary of acting too quickly. Careful consideration needs to be given to the consequences. For example, avoid simply cancelling all direct debits to minimise financial exposure. By doing this, you could accidentally miss critical payments (for example) for insurance, cut off access to vital supplies and precipitate a further crisis.

5. Considering carefully before offering vouchers and e-gifting. Businesses need to assess their longer term future. If there is no realistic prospect of you being able to continue trading longer term (for example if the business was suffering major financial stress before the COVID-19 crisis), taking such steps could simply be seen as worsening the creditor position and it may be that an insolvency process would be the more appropriate route.

6. Being patient – guidance is changing rapidly and additional measures are being introduced to support business and employees. Because of this, those responsible for rolling out measures will be under significant workload pressure. It may not be possible to obtain a decision on matters immediately. Continue to monitor the position and be prudent in day-to-day operations.

7. Engaging with advisers, whether legal, accounting or otherwise. Test your proposals, plans and options with your advisers and seek comfort from their experience and advice. Taking advice – perhaps inviting legal and/or financial advisers to join Board calls - will provide a layer of protection to directors managing this crisis. Seeking advice demonstrates the directors' prudency and understanding of stakeholder interests in this rapidly evolving situation. We are happy to help from the smallest informal query to assisting you to build and deliver on a coping strategy for the weeks and months to come.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.