Updated: 19th January 2021
If your business has experienced a financial decline and is making a loss, you should take action quickly to limit the damage and prevent formal insolvency. A number of options are available to you even if you do enter insolvency, however, such as formally negotiating an affordable repayment plan with creditors.
If you’re in debt to HMRC, this is a particularly stressful situation to deal with. The fact is that they do help some companies struggling to keep up with tax and National Insurance liabilities, and this if via their Time to Pay arrangement.
An HMRC Time to Pay arrangement, sometimes called a TTP, lets you make pre-agreed payments over a longer period of time. This is generally for around six months, but under certain circumstances a longer period of time may be agreed – sometimes up to 12 months.
You’ll need to negotiate an instalment plan with HMRC, and present a solid case for them to grant this extra time, clearly demonstrating your ability and commitment to repay the money you owe.
Current and upcoming tax liabilities must still be paid in full, as a Time to Pay arrangement generally only covers payment arrears. It’s also worth noting that your previous payment history with HMRC will be taken into account when they decide whether to grant a TTP.
It’s also worth pointing out that failing to adhere to the agreed terms at any point during the course of a TTP, is likely to result in swift legal action being taken against the company by HMRC.
Whether or not your financial decline has led to formal insolvency, finding an appropriate source of alternative funding can quickly help you manage the situation and escape debt. One of the main benefits of alternative funding is that it’s more flexible than traditional bank lending, and so you may be able to find the type of finance that better suits your business.
Invoice finance is one such source - it releases regular sums of working capital throughout each month, and is based on the value of your sales ledger. Not only can you improve cash flow in this way, but a factoring company can also take over your credit control function, allowing you to focus more on income-generating activities and lead your business out of debt.
But what if your company has already entered insolvency? Are there many options remaining open?
A Company Voluntary Arrangement, or CVA, involves a licensed IP officially negotiating with creditors for reduced repayments over a longer time period. This arrangement is legally binding on all parties, and because your creditors cannot take legal action against you whilst the CVA is in place, (providing you’re meeting all the terms and conditions), it provides the space your business needs to recover by trading your way out of difficulty.
The fact that you regain control of the company when the IP has set up the CVA is a huge bonus for directors, and reflects the fact that beneath the financial difficulties lies a business deemed fundamentally viable by experts.
Company administration is another official insolvency solution that offers a ‘breathing space.’ In this case, once your company enters administration, an eight-week moratorium period commences which allows the appointed administrator to assess the business and formulate an appropriate plan.
The eventual exit from company administration can take a number of forms, from entering into the Company Voluntary Arrangement mentioned above, to taking a pre pack administration route that allows for the purchase of underlying business assets.
Pre pack administration is a process by which underlying business assets are sold on. Members of staff are transferred to the new company, or ‘newco,’ using TUPE - Transfer of Undertakings (Protection of Employment) legislation.
The main features of pre pack administration include the speed with which the business is sold, and the fact that existing directors can buy these underlying assets if they have the personal funds to do so.
It can be a controversial method of business purchase, but there are stringent rules surrounding pre pack administration - a licensed IP must be able to prove that it provides the highest returns for creditors, for example.
If you would like more information on how to improve a loss-making business and deal with financial decline, call one of the team at Real Business Rescue. We have extensive experience of helping businesses in all industries, and can offer you a free same-day consultation. We work with 100 UK offices.
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