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A guide to managing business debt

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What can you do if your company is in debt?

Debt is not always a bad thing for a business; utilised correctly, debt can help a company stabilise its cash flow position, invest in machinery, stock and assets, and accelerate its long-term growth or expansion aims.

When debt becomes unmanageable, however, problems can quickly start to mount for the company.

Dealing with your limited company’s debts

Directors should be aware of the warning signs of problem debt and be willing to take action if any of these signs are spotted:

  • Being unable to pay creditors on time
  • Falling behind on your HMRC tax obligations
  • Being unable to access further credit
  • Increasing pressure from creditors
  • Threats of legal action including Statutory Demands and Winding Up Petitions

When a company’s debt problems threaten the long-term viability of the business, swift action needs to be taken to stablise its financial position. If the situation is ignored and left to continue, the company’s position is only likely to worsen which could lead to the company becoming insolvent.

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What is company insolvency?

A company is classed as being insolvent when it is unable to meet its financial obligations as and when they fall due. If your business’s cash flow is stretched and you are finding it difficult to pay your creditors, bills, and other overheads in full and on time, this should be taken as a serious warning sign that your company could soon be – or may already be – cash flow insolvent.

Insolvency can also be determined by comparing the value of its assets with its level of outstanding debts. If the company’s debts are greater than its assets, the company is classed as being balance sheet insolvent.

If your company is insolvent, you have certain legal responsibilities which you must ensure you adhere to; failure to do this could see you in breach of your fiduciary duties. Once you know your company is insolvent, you must prioritise the interests of creditors above those of yourself and your fellow directors and shareholders. This means that you should not do anything to worsen their position or risk them suffering further financial losses.

In many cases this will mean the company has to stop trading immediately, however, there are some situations where it may be beneficial for trade to continue if it is determined that this will increase overall creditor returns. This decision can only be made by a licensed insolvency practitioner once every option for rescue, recovery, and closure have been explored.

Is your company insolvent?

If your company is insolvent you have a number of legal responsibilities that you must adhere to. Taking steps to protect creditors from further losses by contacting a licensed insolvency practitioner can help ensure you adhere to these duties.
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My business is in debt – what are my options?

The good news is that there are a range of options available to limited companies that find themselves struggling with unmanageable and ever increasing debt. Depending on the financial and operational position of the company and the likely viability of the business going forward, solutions may include placing the company into administration to allow for a process of restructuring to take place, formally negotiating with creditors via a legally binding Company Voluntary Arrangement (CVA), or exploring options for bringing the company to an orderly end through liquidation if rescue is unachievable or undesirable.

Will I have to repay my business debts personally?

When a business is incorporated as a limited company, its directors are afforded a level of protection through limited liability. A limited company is classed as its own legal entity, and therefore responsible for its own debts. If a limited company becomes insolvent, therefore, and is unable to repay its debts, its directors will not be held personally responsible for paying the remaining amount owed.

The exception to this is if the director has signed a personal guarantee to underpin any of the company’s borrowings. In this instance, the personal guarantee will crystalise upon the company entering into formal insolvency proceedings, and responsibility for the associated debt will transfer to the director who gave the guarantee.

How Real Business Rescue can help with your company’s debts

If your business is struggling with its debts, Real Business Rescue’s team of licensed insolvency practitioners are here to help. You can arrange a free no-obligation consultation with one of our insolvency experts who will take the time to understand your company’s debt situation and explore the options open to you and your business. Contact our team today on 0800 644 6080.  

Need to speak to someone?

If your company is struggling with unmanageable debts, squeezed cash flow, or an uncertain future, you are far from alone. We speak to company directors just like you every single day, and we are here to give you the help and advice you need.
Call our team today on 0800 644 6080

How Real Business Rescue can help

If your company is experiencing financial difficulties, Real Business Rescue has a team of insolvency experts who can help you work through your current situation. We can talk you through a range of business rescue and recovery options to help you get your business back on track, or alternatively we can discuss the best way of closing your company should you want to walk away for good. Call us today to arrange a free no-obligation consultation with a licensed insolvency practitioner.

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