Businesses in the West Midlands are being advised how to protect their assets from a deepening recession.
Corporate and commercial lawyer James Hayes says more family and individually owned firms will be looking to protect their cash and other assets, such as buildings and intellectual property, by setting up new companies to ensure that those assets are not lost if the economy fails to recover.
Experts have been predicting a deep recession as a result of the Coronavirus pandemic, as people avoid going into towns and cities or are spending less due to having been on furlough.
Mr Hayes, a partner at Midlands law firm mfg Solicitors, said company directors should protect the company’s assets and ringfence its cash for “rainy days ahead”.
He said: “As long as directors can manage the business as a going concern, maintaining solvency and pay their creditors, they don’t actually need to hold on to cash to pay some future unknown creditors.
“It is sensible planning to make sure that cash is protected, but this can be done by ringfencing it through the creation of a new company.
“Instead of removing cash or assets from the company as a dividend, shareholders can transfer their shares in the trading company to a new company in return for shares in that new company. Cash and assets can then be transferred to the new company, which removes them from the grip of future unknown creditors.
“At the same time the cash or assets can be preserved for use again by the trading company because the trading company and the new company are now within the same group.
“For example, a building could be transferred by way of dividend from trading company to new company. The trading company could continue to occupy the building under the terms of a lease, without having triggered an income tax liability on the members who might otherwise have removed the building as a dividend for themselves. The assets are then protected from future creditors and able to be used if needed should the economic position worsen.
“Sadly, it’s entirely possible that the recession caused by Coronavirus will be deep and will mean businesses may struggle or even fail. Taking steps now to protect assets for shareholders is something many companies will want grasp quickly.”
Businesses needing advice on protecting their assets can contact James Hayes at mfg Solicitors through email@example.com or through the website at www.mfgsolicitors.com.