Updated: 13th April 2020
As a small boutique we deal with a number of suppliers who extend products to us via a line of credit. In the past we had no problem keeping up with our financial obligations as have always generated a high enough volume of sales to ensure they were paid. However, online competition has begun to hurt our industry as a whole, meaning business has slowed while our debts have skyrocketed during the past year.
I get the feeling that the business is not far away from going bankrupt if I can’t find a way to spark growth somehow. Our business plan was profitable for almost a decade before this last year. A few wrong loan decisions and now we’re in trouble. I really don’t want this family business to come to an end, but what can I do to stop this happening?
The answer to that will depend on which route you want to take with your business, however, rest assured that there are solutions out there. If you believe in the viable of your business as a profitable entity going forward and you want to pursue continuity, a formal agreement with your creditors through a Company Voluntary Arrangement (CVA) may suit you perfectly. You mentioned that a few wrong loan decisions put you in a bind. A CVA might be able to help you renegotiate the terms of those loans and reduce your monthly outgoings to a more manageable and sustainable level.
If you’re trying to restructure the company to be more competitive you’re going to need funds to invest. By reducing the monthly payment amounts of existing finance agreements, a CVA can give you the extra capital needed to improve your processes and invest in marketing methods that you couldn’t afford previously. More importantly, as a CVA is a legally binding process, it will prevent creditors from increasing their payment demands over and above what has been agreed.
With this in mind though, you should be aware that CVAs are not an option for every struggling company. In order for a CVA to be implemented it needs to be agreed to by a majority of your outstanding creditors. Creditors are only likely to agree if you can demonstrate that the business has a realistic chance of becoming profitable again in the future. If you are considering a CVA for your company you will need to enlist the help of a licensed insolvency practitioner who will be able to advise whether this is appropriate and if so, will be able to draw up a proposal to present to creditors.
If a CVA cannot be arranged and the company is closer to its demise than thought, you may need to consider alternative insolvency procedures. This could include administration, during which legal protection will be afforded to your company while an insolvency practitioner assumes control of ongoing operations while a way forward is plotted. If your situation is beyond rescue, a formal shut down by way of a Creditors’ Voluntary Liquidation (CVL) may be the only realistic option.
When experiencing financial distress with your limited company, it is vital you talk to an insolvency practitioner. After assessing your situation they will be able to provide sound advice on the next best steps for your company.
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