Dentists in private practice across the country will be feeling the effects of the government response to the COVID-19 pandemic as a result of the Chief Dental Officer’s requirement that routine work be suspended throughout the UK.
The inevitable consequence is a significant reduction in turnover, affecting cash flow and meaning practices will be encountering financial strain, with the British Dental Association reporting that 1 in 5 practices are at risk of permanent closure.
Employed dentists may be eligible for the Coronavirus Job Retention Scheme where employees can be furloughed. For those dentists who run their own businesses, consideration of business viability will be a necessary outcome of the current crisis.
Dentists will typically operate in one of the following ways:
In each phase on the scale of financial decline, from under performance through distress to crisis, there will be key differences in the pressures, duties and potential consequences confronting dentists, depending on the particular types of business.
For example, a sole trader will be personally liable for the debts of the business and could face bankruptcy upon a failure of the business, whereas dentists who are company directors will be required to consider whether and when their duties to the company as directors expand to include what is in the best interests of creditors. Directors whose conduct is below the standard expected can face disqualification as a director or a misfeasance claim seeking a personal contribution to the assets of the company.
To ameliorate these risks, and as for many dental issues, early assessment and appropriate intervention is key. There is no particular obligation on a business of any kind to cease trading if it considers it may be insolvent. Insolvency occurs when either a business is unable to pay its debts as they fall due, or if its liabilities exceed the value of its assets. However, the decisions made at a time of financial decline through to crisis can have consequences for business owners if a formal insolvency does occur.
The sooner a business recognises the start of decline and takes action or advice, the more options are typically available. These options range from:
Many of the restructuring or rescue options require creditor engagement or agreement. Public policy at the present time seems to have a focus on community spirited behaviour and supporting businesses’ survival during the crisis wherever possible. Indeed on 23 April 2020 the government announced a moratorium on what it regards as aggressive debt recovery tactics by landlords where the reason for non-payment of rent is due to the pandemic. Instead, landlords and tenants are expected to work collaboratively.
Applying the expectation of community spirited behaviour to struggling businesses, this suggests that those who are transparent and open with their creditors about their current financial circumstances can perhaps hope for favourable creditor engagement with an early restructuring or rescue proposal.
To assist with this, there has also been an announcement that a new pre-insolvency moratorium on creditor action will be introduced for companies undergoing a restructure or rescue process to enable them to continue to trade free from creditor pressure. Further details of the implementation of this moratorium and conditions for use are eagerly awaited.
If formal insolvency cannot be avoided, then ensure issues specific to dentists are considered and expert advice is sought. Ordinarily, a dentist will only be suspended from practice following the making of a bankruptcy order if the bankruptcy reveals evidence of some related professional misconduct. However, NHS contracts may be terminable upon certain types of insolvency of the dentist which could have implications for any rescue strategy. A dentist’s equipment may be excluded from a bankruptcy estate if it can be treated as tools of the trade, and office holders appointed in connection with a dental practice may not be able to consider the continued trading of the business.
For more information on the article above please contact David Pomeroy or another member of the Restructuring & Insolvency team.
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