Updated: 18th August 2021
The coronavirus pandemic has caused a wave of insolvencies and liquidations across many industries, and created ongoing uncertainty for directors and employees alike. Despite the supportive government schemes that cushioned the economic blow, the business world has seen huge transformation in a relatively short time.
If your company is going bust after Covid, it’s important to get help from licensed insolvency professionals. In fact, carrying on trading could lead to disqualification as a director and personal liability, so the sooner you receive help the more options may be open.
So what are some of the issues to consider if your company is going bust?
UK insolvency laws dictate that you must protect your creditors’ interests if the business is insolvent. Primarily, this means acting in their interests rather than those of the company, and minimising their losses.
This is undoubtedly one of the most important issues in this scenario, but by taking the correct course of action you can also protect yourself and other directors. If you fulfil your legal duties as a director, you safeguard yourself from allegations of misconduct.
When a company is liquidated, an investigation takes place into why it suffered financial problems. If any instances of misconduct are uncovered, or you’ve traded when you knew the company had gone bust and was insolvent, you could face disqualification as a director for 2-15 years, plus personal liability for business debts.
The government’s coronavirus finance schemes propped up many businesses during the height of the pandemic. There are also other forms of alternative funding that can help you if you believe the company is about to go bust, however.
If your business owns valuable assets, for example, you may be able to sell them to a financing company and lease them back without a break in usage rights. You receive a lump sum of cash from the sale that can help the business survive, and then continue to trade.
Alternatively, invoice finance could be a good option if you run a high value sales ledger. In this case you’d receive regular cash amounts through the month, and use them towards paying the bills.
If your debt repayments can be renegotiated you could free up money to pay bills or invest in the business. A Company Voluntary Arrangement (CVA) is an official process suitable for businesses deemed to have a profitable future.
Maybe Covid has caused temporary financial difficulties for you, but given a little more time you believe the business would survive? If so, a CVA would protect it from winding up petitions and other legal action by creditors, which could lead to liquidation.
HMRC Time to Pay
HMRC’s Time to Pay scheme, or TTP, can give you vital extra time to pay your tax bill if you’re in arrears. The additional timescale is typically 3-6 months, but it can be longer, and you’d need to present a persuasive business case to secure the extra time to pay.
f creditors are already threatening to close the company down, you can protect your business by entering company administration. The administrator might decide to restructure the business - this could include redundancies, or maybe a CVA to reduce your outgoings. Even a sale may be possible, but if liquidation is the only option, entering Creditors’ Voluntary Liquidation is the best course of action.
Creditors’ Voluntary Liquidation (CVL)
Creditors’ Voluntary Liquidation means that your business will close, but it’s a process that helps you carry out your legal duty to creditors. Business assets are sold at auction, and the money used to repay your business’ debts.
Unfortunately, not all creditors will receive repayment, and any remaining debt is written off. The company then closes down, and its name removed from the register at Companies House.
One benefit for directors who follow this process is the potential entitlement to statutory redundancy. The average director redundancy claim is £9,000 – a substantial amount that could pay for the CVL and/or support your own financial position.
If your company is going bust after Covid, get in touch with Real Business Rescue. We’ll guide you on your best options, and if appropriate, let you know if you’re eligible to claim director redundancy pay. We also offer free, same-day consultations, and work from a broad network of offices around the country.
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