A Damp New Year

Like every year, the new year brings new beginnings and hope for many individuals and businesses around the country, but this new year has started off on a damp (very damp!) note for many businesses across the north of England. The month of December saw one of the wettest Decembers on record with Carlisle regularly flooding and a disruption to the holiday festivities in Yorkshire and Lancashire saw over 60 severe flood warnings and some severally wet business premises. 

The disruption to many businesses will not just be a short term stress to fix all the damage caused by the water in fact in stems deeper than this as many businesses will not have the capital to be able to reinvest and fix all the problems. Not to mention he emotional heartache caused by the damage which in itself is likely to put off many business owners to go through the torment of in effect setting up again. 

Yes having the capital will be a problem and businesses will have business insurance to cover some of the damages lost however business owners need to consider what the insurance actually covers and most policies will have add on policies like flooding insurance and business continuity insurance. Without these two add ons it is likely the insurance underwriters will not cover in the event of flooding. 

However it is unlikely most standard policies will have an additional flooding insurance add on and so are likely to cover the damage caused by the flooding. 

The bigger concern however will be weather the business continuity insurance is in place as this will be the critical policy. It is likely that this will be an additional product in virtually all policies. This will cover any trading losses while the business is closed during the repair period. This could be a lifeline to many businesses as it will mean the business does not lose out during the renovation period. 

The problem will occur where the policy does not cover business continuity as the renovation and repair work could go into months and without any income, most small businesses - where cash flow is already very tight - will not be able to sustain in effect, no income; resulting in many owners considering their business options and whether it is worth continuing and going through such heartache again.

Some of the worst businesses will be the ones who have experienced flooding in the past where their insurance company may well have paid out on the damage caused in the first floods however it is very unlikely they would have been able to re-insure their businesses against flooding in the future. Now that they have been flooded again the damages caused will need to be covered by their own personal funding. In some cases these businesses will already be cash strapped and finding thousands of additional pounds to repair these issues may be a step too far. 

But what does that mean to the business in general? Any business will have employees, leases, suppliers to pay, possibly a bank overdraft and HMRC liabilities to pay. Without any income businesses will become insolvent and may have to consider their options regarding the company. 

Having spoken to a local caravan business who has been impacted by the flooding and Cashflow issue will no doubt impact them is making the owner consider whether they can afford to setup again and more importantly whether they can sustain a large period of time without an income. Unfortunately the insurance policy in this occasion will not cover business continuity but that said even if it had done the damage is much more than like for like replacement because like this business some of their stock is very unique and finding those types of stock again is very arduous and time consuming. 

As heartless as this may sound suppliers and creditors of businesses being effected may not all be sympathetic to the problem as they also will have cash restraints like all businesses and will want to be paid, adding additional stress to flooded business owners. However all is not lost, business owners can consider insolvency options which also afford time and breathing space to businesses to get back on their feet and be able to pay such creditors. For example where there is a business that can be salvaged but needs the time to re build and get repaid from the insurance may want to consider a creditors voluntary arrangement (CVA) and so allowing the business some breathing space. On the other hand if the business is no longer salvageable or the owner has decided they cannot go through this emotional roller coaster again then maybe a creditors voluntary liquidation is an option whereby the business is formally closed down through an insolvency process and all the companies liabilities will be dealt with through the formal procedure. 

Each business circumstances will be different and so saying that these are the only two options for flooded businesses will be an oversight as both formal and informal insolvency and restructuring option may need to be considered. 

Kingsland business recovery are licensed insolvency practitioners and turnaround management specialists and are able to assist businesses in financial distress. If your business has been effected by the recent floodings and you wish to consider your options contact Kingsland on 0800 955 3595 and speak to one of our specialist insolvency advisors. 

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