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Updated: 8th January 2021

Help for Insolvent Businesses: 5 Recovery and Restructuring Options

When a company is unable to keep up with its financial obligations it runs the risk of being wound up by creditors and forced into liquidation/bankruptcy. Taking action quickly is the best way to minimise the risk of costly court procedures that could damage the reputation of the company or even dissolve it completely. The following 5 options should be considered by anyone looking to usher their business into recovery:

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When being quoted low fees for liquidations, the saying that comes to my mind is “If it looks too good to be true, then it usually is” please be careful as the outcome may not be what you had hoped for.
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Company Voluntary Arrangement (CVA)

A company voluntary arrangement is a formal agreement reached between a company and its creditors. It revises the terms of a loan agreement so that the monthly payments become easier to handle and/or the length of the loan increases.

During the procedure, an insolvency practitioner drafts and proposes an agreement containing viable repayment adjustment terms for the creditor’s consideration. If approved, the arrangement would protect the company from legal actions taken by creditors as long as the terms of the new contract are upheld. This method of negotiation typically offers a higher rate of success than an informal proposal recommended independently by the business itself.

Asset Financing

If it isn’t possible to reach an arrangement with creditors and the business needs additional cash flow to meet its obligations and repay debts, asset financing may be an option to consider when the credit score won’t allow for an unsecured loan solution. With asset financing you would use one of the company’s assets, or a class of assets, as collateral to obtain a secured loan, under the condition that the asset could be seized in the event of default (if you’re unable to adhere to the loan terms). This is one of the most common loans for businesses in financial distress.

Invoice Discounting and Factoring

Invoice discounting and factoring are two very similar financial services that allow you to borrow money against outstanding invoices and accounts receivables. With both of these loan types you’re given a line of credit that is equal to up to 90% of the money currently owed to the company. This line of credit operates like a credit card because you only pay interest on the amount you borrow. Also, the line of credit can increase along with the amount owed to the company, remaining at 90% of the sales ledger value at any time.

The primary difference between invoice discounting and factoring is that factoring puts the control of processing and collecting invoice payments in the hands of the factoring company (the lender), as they take full control over the company’s sales ledger once the loan is granted.

Director Support

Director support services offer sound advice and recommendations to directors who are managing the affairs of a struggling company. Knowing your directors’ duties while trading an insolvent company is extremely important, as failure to fulfil these duties could result in accusations of wrongful trading which can result in personal liability. Thus, having access to an on-call advisory service will give you the assistance needed to ensure optimal decision-making without error and minimising the risk of personal liability.

Company Administration

When the outcome seems hopeless and creditor pressures are becoming too much to bear, entering into administration voluntarily is an option that should be considered. Voluntary administration is a formal procedure in which the directors of a company appoint a licensed insolvency practitioner to act as the administrator (interim chief executive) of the business.

In administration all legal actions taken against the company are halted for 8 weeks, during which time the administrator assumes full control of the business with the goal of repaying as many debts as possible and/or arranging agreements with creditors. If a compulsory liquidation or receivership seems imminent, acting quickly to put the business into administration may be the only way to postpone and possibly prevent the dissolution of the company.

Regardless of how dire the situation seems, almost every struggling business can benefit from one of the solutions mentioned above. Our professional turnaround specialists are trained to assess and address even the most challenging business recovery scenarios. Call us today on 0800 644 6080 to participate in a free consultation and find out how we can help you avoid or escape insolvency. 

Keith Tully


0800 644 6080
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