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Limited Company Debt Advice

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Updated: 9th February 2021

Business Debt Advice for Company Directors and Sole Traders

In an ever-changing and often challenging business landscape, it is unfortunately not uncommon for a small business to experience some form of financial difficulty. This may range from a temporary dip in trade, through to terminal insolvency. Taking expert business debt advice at the first signs of your company exhibiting financial distress could make all the difference when it comes to the long-terms prospects of your business.

Cash flow problems

Cash flow is at the heart of every successful business. It is what allows the company’s finances to run smoothly, ensuring bills and other outgoings are paid on time and in full. Directors are often made aware of financial difficulties within their business when its cash flow becomes squeezed. This is because cash flow is a great indication of the overall financial health of the business; when you notice your cash flow becoming tight, you should take swift action and seek expert advice to understand the root cause of this.

It is not so easy as to say that decreased cash flow is a reflection of poor sales or reduced income. Sales may remain at a constant level, but if operating costs have slowly crept up, or your escalating debt repayments have become a severe burden, this will soon be made evident in the business’s cash flow levels when outgoings become more difficult to maintain. Until you know what is causing your worsening financial position, you will struggle to turn the situation around.

Debt advice for limited company directors

If you are struggling with business debts, the very worst thing you can do is avoid the problem and hope it will go away on its own. Seeking professional company debt advice may seem like a tough step to take, but in many cases, this can make all the difference when it comes to the future of your business. Company debt problems have a habit of spiralling out of control if they are not addressed quickly and effectively. Seeking business debt advice at the earliest opportunity gives your company the best chance possible of effecting a successful turnaround.

Just because your limited company is experiencing debt problems, it does not mean that it is beyond rescue. A business going through a bad time is not necessarily a bad business. In many instances there are certain specific factors which have contributed to a period of financial distress, rather than an overall failure of the business. Once these factors have been identified a plan can be put into place to help the company overcome these barriers, and get it back on the road to success.

Business rescue is not a one size fits all approach; each company is individual and the challenges being encountered are likewise individual to that exact business. At Real Business Rescue we approach each company as the unique entity that it is. We will work alongside you, and any other directors or shareholders, to come to a solution which works for your business as well as your employees, creditors, and your future aspirations for the company.

Options for limited companies in debt

While no business owner wants to be dealing with growing company debts, the good news is that there are a multitude of business rescue and recovery options which can be put in place to help steady the business during periods of financial uncertainty, and ensure it is placed back on a solid footing going forwards.

A licensed insolvency practitioner will be able to take you through your options, and will be there to provide advice as to the most suitable option for you and your company. This expert and impartial advice is vital when you are dealing with a company or business which is struggling under growing debt and mounting creditor pressure.

  • Company Voluntary Arrangement (CVA) - If you are dealing with increasingly unaffordable liabilities to a number of creditors, your appointed insolvency practitioner may ask you to consider a Company Voluntary Arrangement (CVA). A CVA is a formal insolvency process which functions as a sort of payment plan, allowing your company to restructure its liabilities by entering into an agreement with its creditors. A CVA is not appropriate for every company in debt; indeed, you must be able to demonstrate that your company has a high chance of a successful and profitable future before creditors are likely to agree to implementing the arrangement. A CVA must be drawn up and administered by a licensed insolvency practitioner, and at least 75% (by value) of included creditors must agree to it before the CVA can be put in place, however, once it has been implemented all creditors are legally bound by its terms.
  • Finance Options - If your cash flow is suffering and you have exhausted all means of cutting costs, you may need to look at raising additional funds to bridge the shortfall. If this is something you want to consider, there are various finance options available which could help get your business back on track. These could include a short-term loan to tide you over until the situation improves, invoice financing which allows you to release a percentage of the money you have tied up in unpaid invoices, or a specialised business overdraft to help you deal with unexpected drops in your cash flow. However, it is important to note that taking out further borrowing should only be considered if you believe your current problems to be temporary. If you simply need a financial cushion to help you trade your way out of difficulty then these options can really help. However, if you know that your situation is unlikely to improve in the near future, and the additional finance will merely allow you to stay afloat for another couple of months before you find yourself back in the same position, you should steer clear of going down this route and instead discuss more long-term options for stabilising your company with your insolvency practitioner.
  • Creditors’ Voluntary Liquidation - Unfortunately there sometimes comes a time where a company is beyond rescue, and there is little other choice than to close the business down for good. If liquidation is the most appropriate option for your insolvent company it can enter a formal process known as a Creditors’ Voluntary Liquidation (CVL), which will ensure your business is closed down in the most efficient way, while allowing your outstanding creditors get paid from the company’s assets in a fair and equal way. A CVL can only be entered into with the help of a licensed insolvency practitioner who will handle the whole process on your company’s behalf, including liaising with outstanding creditors and managing their expectations.

Business debt advice for sole traders

As a self-employed sole trader, your business is set up differently to one which is operated as a limited company. One of the main differences, and one which is particularly important if your business is in debt and struggling to manage its outgoings, is that you are not protected with limited liability as a company director is.

Limited liability is a valuable form of financial and legal protection offered to those that operate their business as a limited company. It works on the basis that a limited company is its own legal entity, separate from its directors and shareholders, and it is therefore solely responsible for any debt it accrues. In the event that the company becomes insolvent and is unable to pay its liabilities, the onus for repaying will not fall on the company’s directors and/or shareholders unless they have previously provided a personal guarantee as security for the borrowing.

As a sole trader, however, you and your business are legally classed as the same entity. This means that if you take out borrowing – even if the sole purpose for this borrowing is for business activities – and your business is unable to generate enough funds to meet the repayment terms, you will have to use your own finances in order to make these repayments yourself. Failure to do this could have huge implications on your personal financial situation and could even lead to you having to enter a formal insolvency process such as an Individual Voluntary Arrangement (IVA) or bankruptcy.

Taking specialist business debt advice at the first signs of trouble is crucial in protecting not only your sole trader business, but also your personal financial position.

Specialist debt advice for company directors and individuals

If your company or sole trader business is in financial difficulty and you need expert business debt advice, speak to the experts at Real Business Rescue. Our team of licensed insolvency practitioners are on hand to help you understand your options and make the best decision for you, your company, its creditors, and employees. Call today on 0800 644 6080 for immediate help and advice or to arrange a free and confidential consultation with a licensed insolvency practitioner.

Keith Tully

Partner

0800 644 6080
Director Support - Business suffering from Cash-Flow Problems?
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