I can't pay my limited company's creditors and debts - what now?

When your company can't afford to pay its creditors, suppliers and other debts what are your options?

If you are experiencing increasing pressure from creditors and your company is not in the position to be able to pay its bills, debt repayments, and suppliers as and when they fall due, this is a huge warning sign that your business may be insolvent, or is on the road to becoming insolvent.

Mounting pressure from suppliers and falling behind in your payments to creditors should be seen as a sign that all is not well with the financial health of your business. While the situation may seem insurmountable, rest assured there are a range of options available to companies in exactly this position.

 

 

 

If you believe your company is already insolvent, you must seek the advice of a licensed insolvency practitioner as a matter of urgency. Once you know your company is insolvent, you have certain legal duties that you must comply with; one of these is to shield your creditors from further losses by placing their interests above those of yourself and your fellow shareholders/directors. In many cases this will mean trade will need to stop immediately to stop your company's current financial situation from worsening.

If you carry on operating the business while knowing that the company is insolvent (unable to pay its bills and with debts that exceed the combined value of its assets), you could be accused of wrongful trading further down the line which could see you becoming personally liable for some of the company's debts.

Negotiating with your company's creditors and suppliers

If your company is struggling to keep up with its payments to suppliers, your first step should be to enter into informal negotiations to see whether you can come to a mutually beneficial arrangement. If you remain co-operative with your creditors, you may be surprised at how amenable they are to an informal payment plan.

Depending on the severity of your company's financial woes, however, this may not be possible. If you owe significant amounts to a number of different creditors, or you believe your company to be insolvent, you are advised to seek professional advice from a licensed insolvency practitioner as a matter of urgency.

How can an insolvency practitioner help with creditor pressure?

Once you have appointed the services of a licensed insolvency practitioner - whether this is to liquidate the business or to attempt a rescue via an administration process - you will find that creditor pressure is immediately lifted.

The insolvency practitioner will liaise with creditors on your behalf, informing them of the company's position, and the likelihood of them receiving the money they are owed. Many directors find that the increasing creditor pressure they receive as their company's position declines to be extremely stressful, and that having this lifted is a huge weight off their minds.

“After submitting my '60 Second Test' I received a complimentary Insolvency Options guide packed full of useful information. The team of insolvency specialists phoned me back in less than 10 minutes after reviewing my details and guided me through the next steps. Really helpful! Thank you Sophie!”

Patricia 

 

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Sophie Schofield
Business Debt Expert

What options are available if you cannot pay your company's creditors, debts, and suppliers?

Depending on your company's financial position, future viability, and the appetite of its directors to continue trading, there are a number of options available:

• Attempt a CVA - If you'd like to save the business and continue operating, you could consider instructing an insolvency practitioner to propose a CVA to your creditors on your behalf. If approved this legally-binding agreement would allow you to renegotiate your repayment terms with creditors, giving your company longer to pay back the money it owes. Once approved, a CVA is binding on all parties which gives you much more security that an informal creditor arrangement would.

• Enter Into Administration - If creditors are threatening - or have already started - legal action against your company, you may be to place the company into administration. While in administration, a moratorium would be placed around the company which acts as a legal ringfence halting any litigation against the company. This prevents your company from being forced into compulsory liquidation while a route forward is plotted.

• Pre-pack Administration - Pre-pack administration involves selling the business and/or its assets in a sale which is pre-arranged before an administrator is formally appointed. This sale can be to a connected or an unconnected third party. While valuable assets will be bought by the purchasing company, the burdensome debts will remain with the existing insolvent company, meaning the new company can start to trade free of these liabilities. An insolvency practitioner would first have to determine whether a pre-pack would be a suitable option, and if this is likely to represent the best overall value for creditors.

• Obtain Financing – Depending on your company's position, refinancing existing borrowing may be all that is required to get the company back on a solid financial footing. Refinancing on more favourable terms can not only reduce the immediate cost of borrowing, but save you a considerable amount of money over the life of the finance agreement. However, taking out more finance when a company is already heavily indebted is an extremely risky strategy and should not be attempted without the approval of a licensed insolvency practitioner. If the company is already insolvent, obtaining further finance could be a breach of your duties as director; you should seek professional insolvency advice as a matter of urgency once you know the company to be insolvent.

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What if creditor pressure becomes too much?

If the company's financial pressures have taken it beyond the point of rescue, it may be the case that liquidation is the only viable solution. There are two forms of liquidation:

• Creditors' Voluntary Liquidation - A Creditors' Voluntary Liquidation is a director-initiated process which brings about the end of a company, its outstanding debts, and thereby stops creditor pressure. Once the insolvency practitioner is appointed, they will be responsible for dealing with creditors and ensuring they are repaid as far as possible through the sale of company assets. Once this has been done, the company will be dissolved at Companies House and will no longer exist as a legal entity.

• Compulsory Liquidation – If creditor pressure continues to grow and you fail to come to a mutually-agreeable arrangement, you may find your creditors lose patience and apply to the court to have your company forcibly wound up.  This is know as a compulsory liquidation. This is a very costly option for creditors and therefore they will often only use this as a last resort; however, in some cases, if a company continues to ignore the creditor pressure being placed on them, they could find their creditors take this step to bring the situation to a final resolution.

How Real Business Rescue can help

When your company can't afford to keep up with its financial obligations, operating a business can become extremely stressful. As insolvency practitioners we're licensed to provide you with the right advice and expert guidance you need during these times.

If you are facing increasing creditor pressure, can't pay your company's debts, and you don't know which way to turn, contact our team today for immediate help and advice.