Dealing with a failing company is not easy, especially without a contingency plan to keep cash flow steady during times of distress. It is usually difficult for a company with poor credit to obtain funding, as a lower credit rating decreases the likelihood of finding a fair and attractive loan. So when an Ltd business is going under, what happens? The answer to that question will depend on how badly your company is struggling and how much potential it has. The following options should help you develop an effective course of action in any situation:
If you know expansion and change is possible and you already have a practical plan to turn things around, seeking asset financing or a company voluntary arrangement (CVA) might be best. Asset financing entails using some of your company’s assets (i.e. accounts receivable, equipment, contracts etc) as collateral to obtain a secured loan; if you default on the loan then ownership of the collateral is transferred to the lender. Despite the intrinsic risk of asset financing, it is a good idea to consider if you simply need some cash flow to get “over the hump” and are confident in your ability to make repayments on time.
A CVA is a legally binding agreement between a lender and a creditor that is used to revise payment terms in order to allow the borrower greater leniency. An insolvency practitioner drafts the CVA based on their assessment of the company’s funds, assets, and monthly repayment capabilities. It is presented as a mutually beneficial contract that increases the creditor’s chances of being paid while also providing relief to the borrower.
I am Keith Tully and I am the Managing Director of Real Business Rescue, I have seen every possible company scenario and am happy to help you where I can, please feel free to call me on my personal mobile 07857 032 528.
The directors of a company that is already insolvent need to be very cautious in order to avoid accusations of wrongful trading. After a formal insolvency procedure an investigation is conducted to determine whether the directors of the insolvent company acted in the best interests of their creditors at all times while trading insolvent. If it is found that the directors failed to adhere to this fundamental rule they may be held personally liable for some of the insolvent company’s debts, and they could be banned from acting as the director of any Ltd company for up to 15 years. For this reason many directors choose to appoint an insolvency practitioner as administrator in order to minimise the possibility of being convicted of wrongful trading and to reduce some of the hassle.
If there is no hope of rescuing the company and returning to profit, it may be time to face the music and safely guide the company into being wound up. During liquidation a company’s assets are converted into funds that are used to compensate the creditors. An administration would allow the directors to appoint an insolvency practitioner to effectively manage the business affairs of the insolvent company.
If you would like to know what to do when your business is going under and are unsure what you can do about it, give us a call for a free consultation. Find out how Real Business Rescue can help turn your company around or, if it is in your best interest, wind it up to pay creditors. We have an extensive network of 55 offices offering confidential director support across the UK. Your business may be going under now, but our expert insolvency specialists may be able to put you on the road to recovery. Please act before it is too late.
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