Updated: 4th January 2021
If your company is facing financial difficulties then it can be difficult to know what your options are. If your business then becomes insolvent you may feel that your options are even more limited. However, there are a number of business turnaround options that are still open even to insolvent companies.
The first thing to do if you are worried about your company’s future is to get a complete view of your finances and discern whether your company is actually insolvent or not. A company is judged to be insolvent (unable to pay its debts) when:
If your company does qualify as insolvent it is important to ensure that you stop trading immediately, as knowingly trading whilst insolvent could result in the directors of the company being held personally liable for the debts owed to the company’s creditors.
If your company is insolvent then all may not be lost - there are actually a number of business turnaround options that may be open to you. Exactly which of these is appropriate for your company and which would be the most advantageous depends on a number of, sometimes complex, factors. If your company is insolvent and you are looking for turnaround options then we recommend that you contact a licensed insolvency practitioner and turnaround specialist.
Real Business Rescue have been advising directors of struggling companies for nearly 30 years and are fully licensed and accredited. We will take the time to get to know you and your business, to understand the circumstances that have lead up to your present difficulties and promise to give you impartial advice about the best options open to you. Contact us online or call us on 0800 644 6080 and we can arrange a free same day meeting at a network of 93 UK offices.
There are a number of options available to insolvent companies that will allow them to continue trading and thus provide a much better chance of a successful turnaround. These include:
If you are experiencing what you believe to be temporary financial difficulties and there is no immediate threat of formal proceedings being brought by your creditors, then you may be able to contact your creditors directly, explain your situation and see if you are able to reach an informal agreement for repaying your debts on different terms. This could include taking a temporary break in payments, or reducing your payments but increasing the length of your debt. However don’t forget that you should also bear in mind any increased interest etc. charges that could result from changing the terms of your debt. It is also important to remember that this is not a formal agreement and your creditors are able to pull out of the agreement at any time.
A CVA is a formal debt management procedure that is administered by a licensed Insolvency Practitioner (IP). During a CVA your IP will negotiate more reasonable and affordable terms with your creditors. This usually takes the form of one lower monthly payment, which your company can then make whilst being able to continue to trade and thus increasing its chance of a successful turnaround. A CVA will only be considered if your company is believed to have a viable trading future and the overall ability to pay off its debts. A CVA can be instigated by the company’s directors, but not by its shareholders or creditors.
Under administration, the company is taken over by a licensed Insolvency Practitioner (IP). The IP will act in both the best interests of the company and the creditors to find the most reasonable and universally profitable outcome.
The administrator (the IP) will draw up proposals which could include:
Under administration the company is still allowed to trade and the terms of the proposal may mean that you do not have to pay off your debts in full. However your creditors are legally allowed to refuse the terms of the administration proposal and may continue you to chase you for immediate payment. However, a licensed and experienced IP will ensure that the administration terms are the most profitable possible for all concerned and therefore unlikely to be refused.
This is a less common practice than administration, however can be employed by a bank (or other secured creditor with a floating charge) if they have doubts about your ability to repay the sums owed to them. In this process the creditor will appoint an ‘administrative receiver’ (usually an IP) who will act to sell your company’s assets in order to repay the debt.
The final option for an insolvent company is to completely close, or ‘wind up’ the business. This can be done at the instigation of the directors – a Creditors Voluntary Liquidation (CVL), or at the instigation of your creditors – Compulsory Liquidation. A licensed insolvency practitioner (IP) will be appointed to liquidate your company and at the end of the process:
Obviously liquidation is often viewed as the least preferable option for a company, however if there is no chance of turnaround then this could actually be the most advantageous option as director’s could claim redundancy payments and then be able to make a fresh start on something new.
If your business is struggling or insolvent and you don’t know where to turn next then the first step is to get some expert and professional advice from Real Business Rescue. Not all situations are as bleak as they may at first seem, and even if the worst does happen then knowing that your company is being dealt with professionally and in a fully compliant manner can take the pressure off and leave you free to concentrate on what’s next.
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