Updated: 8th April 2020
When you seek assistance from a licensed insolvency practitioner, their first objective will be to rescue your business and return it to profitability. This can be effected in a number of ways, depending on your company’s individual circumstances and the level of debt owed.
You may have heard the terms ‘business rescue’ and ‘business recovery’ - the processes associated with these terms include sourcing new funding, restructuring a company’s affairs including assets and debts, and entering formal insolvency solutions such as a Company Voluntary Arrangement or company administration.
Once you have recognised that a problem exists and that the company is in danger of entering insolvency, you should seek assistance from a licensed insolvency practitioner (IP). They will be able to assess your situation, and guide you towards the best options.
So what might these options include?
A Company Voluntary Arrangement, or CVA, is a commonly used procedure for companies experiencing a temporary setback, and which are expected to trade their way out of further problems once the existing debts have been renegotiated.
A Company Voluntary Arrangement offers many benefits to companies in distress, not least of which is writing off any debt that remains at the end of the term. Additionally, all interest and charges are stopped, and creditors cannot take further legal action against you in relation to any of the debts included in the agreement.
If your business needs a cash injection to overcome its current financial issues, a range of options are available that might be suitable. Factoring and invoice discounting use the value of your sales ledger to release cash amounts regularly throughout each month.
Eligible companies are able to release more cash as their business grows, without the need for a high credit rating, or having to complete onerous loan applications. Other potential forms of funding include asset-based loans for companies with valuable hard assets such as plant and machinery, and peer-to-peer lending using an online platform.
Company administration is a formal route into insolvency that provides a temporary moratorium period during which an IP assesses the best path for the company. Creditors are not allowed to take further legal action during this period, and the administrator must achieve one of three outcomes:
HMRC offer eligible companies extra time to pay their arrears of tax, but only if the financial problems are deemed to be temporary. You would need to present a strong case for extra time to pay, backed up by detailed facts and figures.
It is a good idea to enlist the help of an insolvency practitioner when applying for time to pay, as HMRC can be notoriously difficult to deal with. The fact that you are taking your financial situation seriously by seeking professional help can work in your favour - up to 12 months extra time to pay may be available, but the term is commonly 3 to 6 months.
Cutting your operating costs may avert the need to enter formal insolvency, and can release a significant amount of money each month to repay debt or gain new business. Non-essential costs might include software subscriptions, staff training and development, stationery, and attending networking events.
Streamlining your business in this way can increase efficiency, and provide a blueprint for future profitability. Keeping a close eye on stock levels and ensuring there is an effective ordering system will also help you to generate more cash.
It is always the hope that business recovery is possible, but the reality is that sometimes companies cannot be rescued. In these cases, liquidation may be the best or only option.
To obtain an independent and professional judgement on your company’s financial position, call one of the team at Real Business Rescue. We have vast experience across a wide range of industries, and offer free same-day initial consultations in complete confidence.
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