Updated: 5th February 2020
This is a common question posed by the owners, managers, and directors of distressed businesses that are dealing with persistent creditor pressures. Unfortunately, unless aggressive and proactive action is taken there is little that can be done to stop a creditor from taking you to Court and winding up your company forcefully through a compulsory liquidation or receivership procedure.
The risk of being put out of business is especially high if you owe one or more debts greater than £750 and you've failed to comply with a statutory payment demand that was served to your office address longer than 21 days ago. Fortunately, if you're willing to heed advice and act with urgency then the following 5 tips could help you stay afloat through financial hardships:
First and foremost you need to reduce some of your debt obligations and/or keep creditors satisfied if you want them to show lenience and not take you to Court. One way to do this is to communicate with the creditor independently via email or telephone correspondence and request extended payment deadlines or lower minimum monthly payments.
If creditors are unwilling to accept the revisions you propose then you may want to switch to formal negotiations by having an insolvency practitioner (IP) propose a company voluntary arrangement (CVA) on your behalf. If approved the CVA would give you the revised repayment terms that you're looking for, and as long as you honour those new terms none of the creditors involved in the CVA would be able to take any further legal action against your company.
If you're consistently in a position where you don't have enough money to keep up with financial obligations there may be a flaw in your budgeting or accounting process. Consider taking classes in debt management, budgeting, and accounting, or hire an accountant to conduct a financial review and give you a summary of what the major weaknesses are in your budget.
Here's a good rule of thumb that will help with your approach to budgeting -- you should be able to plan for the unexpected and expect what you haven't yet planned for. In other words, you should be accounting for every expense with regularity so that you're familiar with every prospective and guaranteed financial obligation that your company will encounter throughout the course of the month.
A company voluntary arrangement (CVA) is a formal binding contract between your company and its creditors, employees, and suppliers, which is most often used to effectively reduce minimum monthly repayment amounts. However, a CVA can also be used to revise or terminate employee or supplier contracts that could be unnecessarily clogging up your payroll and overhead expenditure.
One way to raise funds quickly is to sell assets of value that your company owns (i.e. - office equipment, inventory, company vehicles, tools, machinery, appliances, real estate, etc.). This is typically referred to as asset liquidation or partial liquidation, and although it seems to be a bit desperate and unimaginative it can work wonders in quickly getting you the money needed to repay creditors or invest in limited opportunities. If you don't want to sell assets you could use them as collateral to obtain a secured loan or line of credit through invoice factoring or discounting.
If creditors are consistently applying pressure and threatening to put you out of business over a debt that you owe them you may have no choice but to resort to applying for an administration order from the Court. If the order is granted you would be safe from any legal actions being taken while an insolvency practitioner serves as administrator to facilitate a complete business rescue so that the company can continue operating as a going concern.
When a business is going broke the first thing a director should do is determine whether the company is in fact insolvent. By definition, a company is legally considered insolvent when it can't afford to keep up with its monthly financial obligations (i.e. - bills and repayments), and/or the total value of the company's debts exceeds the value of all of its assets. As soon as you've become aware of the fact that you're operating insolvent your best course of action would be to cease trading immediately and speak with an insolvency practitioner about your case.
As the owner, director, or manager of a company that is facing the threat of closing down we know you're dealing with a lot of stress. We can alleviate some of that pressure by guiding you in the right direction, as we're legally obligated to do. Call us on 0800 644 6080 for free confidential advice, or send us an email with any questions related to business insolvency and rescue.