For directors, dealing with solvency issues can be extremely stressful especially given potential personal liability concerns.
A realistic assessment of the position is required together with an evaluation of the available options. Above all, directors should avoid the risk of sticking their heads in the sand.
Early dialogue with the company’s lenders may be appropriate in the event of potential or actual covenant breach.
Additional steps for a board to take in such circumstances would include taking professional advice including contingency planning in the event that agreement cannot be reached with the company’s financiers.
If caught early, this may result in the successful restructuring of the company or if not, and the company is forced into an insolvency process, then the board will have been seen to take appropriate action to protect value for creditors.