When should I contact an insolvency practitioner?

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When should I contact an insolvency practitioner?

Updated: 23rd November 2021

When should I contact an insolvency practitioner?

If your company is experiencing financial issues, or you foresee problems in the near future, you will probably know that you should contact an insolvency practitioner. What you may not be clear on, however, is when you should make this call. Should you wait until things get to a point where your company needs to be liquidated? Or is it wise to get a professional involved at the early stages?

You may be concerned about contacting an insolvency practitioner if you know you are not yet ready to close your company. In fact sometimes the best time to liquidate isn’t ‘as soon as possible’, but rather at a specific time in the future when you know a large job or contract will be fulfilled – ensuring your company is in an optimal position to realise funds for creditors and to meet any other liabilities. Perhaps you know a contract is coming to an end and is unlikely to be renewed; or maybe you are in negotiations to secure funding or investment in your company, but need advice on how you should proceed if this does not happen.

Timing the liquidation right could make a huge difference to yourself as director, your employees, and also your creditors. However, while the date of liquidation may be able to be strategically timed; taking professional advice from an insolvency practitioner is something which cannot be delayed.

It is never too early to take advice. Regardless of whether you are planning ahead for liquidation, or if you want to throw everything possible at rescuing your company, taking timely advice is vital. Swift action can be the difference between a positive outcome and having to close your company for good.

Remember your obligations as a director

As a director of a limited company you have certain obligations, particularly when the business is threatened with insolvency. You need to exercise caution in these circumstances and remember that one of your duties as a company director is to place the interests of your creditors above those of the company’s shareholders as soon as you know the business is insolvent. In some cases this can mean trading on if this is likely to put you in a better financial position, thereby allowing more funds to be distributed amongst your creditors. However, you should be extremely careful and ensure you do not take out any more credit or do anything to worsen the position of your creditors. Continuing to trade while insolvent is extremely risky; you should consult an insolvency practitioner once you know your company is insolvent and discuss your next steps.

How an insolvency practitioner can help

By consulting an insolvency practitioner they will be able to advise you on the most opportune time to wind down your company; one which works on both a personal level for you while also maximising the availability of funds for your creditors. Furthermore by enlisting the help of a licensed insolvency practitioner you are protecting yourself from any claims of wrongful trading or misfeasance. The act of engaging with an insolvency practitioner demonstrates your commitment to ensuring your creditors are prioritised and the negative impact on them minimised.

What an insolvency practitioner can do

An insolvency practitioner will be able to talk you through the options open to you and your company depending on its financial position and viability to continue trading. These options may include:

Financing – depending on how your current problems have occurred, it may be possible that securing finance could help get your business back on track. If your cash flow is suffering because of late payers, invoice financing could be the ideal solution; if trade has stalled as a result of your equipment and machinery not being able to keep up with demand, asset financing may help. Other options such as a short-term business loan, or securing a business overdraft could be the difference between your company succeeding or succumbing to a lack of cash flow.
Restructuring through a CVA – If your company has a viable future but is currently being held back due to the debts it has accumulated, a Company Voluntary Arrangement (CVA) may be worth considering. CVAs are not suitable for all companies, only those who stand a realistic chance of turning things around in a relatively short-term and returning to a state of profit. A CVA involves the company entering into negotiations with its creditors in order to restructure its debts and reduce the current monthly payments. A CVA often involves creditors agreeing to wipe out a portion of the amount owed as part of the process. A CVA proposal must be drawn up by an insolvency practitioner, and creditors are given a vote as to whether they wish the proposal to be implemented or not. Creditors totalling at least 75% of the debt must agree to the terms; once approved, all creditors, regardless of how they voted, are bound by the agreement. This type of arrangement can give companies the time they need to trade their way out of their current difficulties and look towards a more financially solid future.
Time to Pay with HMRC – If your main creditor is HMRC, an insolvency practitioner may be able to help you negotiate a Time to Pay (TTP) arrangement which would allow you to pay back the amount you owe through a series of instalments. HMRC will only agree to this if you can demonstrate not only that you are able to clear your arrears in a respectable time, but also be able to keep up with your tax obligations in the future. An insolvency practitioner can help you put forward your proposal to give you the best chance possible of success.
Liquidation – Should the company be beyond rescue, you may need to consider placing your company into a Creditors’ Voluntary Liquidation (CVL). With a CVL, the company is wound down in the best way possible for all concerned. This will maximise the amount available to creditors and ensure any employees you have will be able to claim for redundancy and other statutory entitlements. All debts (except those which have been personally guaranteed) will be cleared and the company closed for good. Creditors will no longer be able to chase you for payment and you are free to move on and even set up a new company if you wish.

How Real Business Rescue can help

Real Business Rescue’s team of licensed insolvency practitioners can give you the help and advice you need regardless of your business’s current situation. We can explore a range of rescue and recovery options all designed to get your business back on a stable financial footing. Should the company’s financial issues have taken it beyond the possibility of rescue, we are able to handle the liquidation from start to finish. Contact our experts today on 0800 644 6080 to arrange a free no-obligation consultation at any one of our 50+ offices.