Advice for Owners of IT Companies

Rescue, Recovery, and Closure Options for IT Companies

If you are considering closing your information technology company, putting your business into liquidation is typically the final step for insolvent companies. During this process, it is vital to seek an appropriate liquidation route in order to maximise returns to creditors and protect your position as the director of an insolvent limited company. 

The success of IT businesses is instrumental to the lives of individuals and businesses alike, as we are collectively dependent on communicating through innovative technology. The IT sector is a global industry, recognised as one of the fastest-growing commercial sectors, currently employing over one million individuals. 

Take Our Free 60 Second Test

Get an instant understanding of your:

• Debt and Asset Position
• Formal Insolvency Options
• Next steps

Plus much more ...

Start The 60 Second Test

Understanding IT Company Liquidation

If you are considering closing your IT company as you can no longer afford to keep the doors open due to mounting liabilities, accumulating debts and pressure from creditors, company liquidation can help settle your financial affairs and being your IT company to an orderly conclusion. A Creditors’ Voluntary Liquidation is a director-initiated formal insolvency procedure resulting in the closure of your IT business.

A CVL can be entered into following advice from a licensed insolvency practitioner, leading to creditors to be notified of your intention to liquidate the business and presented with the Statement of Affairs. This document summarises the financial position of your business, including asset value and liabilities.

A minimum of 75% of shareholders should agree to wind up your company in order to enter the liquidation process; if you are a sole director, however, it is only your consent which will be required. Company assets will then be realised and funds distributed to creditors by the appointed insolvency practitioner in a priority order as set out by the Insolvency Act 1986. Your company will then be struck off the Companies House register, and it will no longer exist as a legal entity.

Contact Real Business Rescue for expert guidance from a licensed insolvency practitioner at time and place convenient for you. Our service is 100% confidential as we understand the sensitivity around the viability of your business and the future of your workforce.

60 Second Test Find Your Nearest Office

How we helped John’s IT Business

John had been working as an IT contractor for the last 13 years, providing consultancy services to businesses in the financial services sector. Since the coronavirus lockdown in March and the announcement of the IR35 private sector reform, market conditions became severely challenging and the business had been struggling to secure work.

The uncertainty surrounding the coronavirus pandemic and social distancing measures pushed John’s IT businesses into decline. As global leaders in the accountancy sector closed their doors to allow for home working and businesses embarked on cost-cutting exercises to minimise overheads, available contract work became severely reduced.

John was no longer able to maintain his company debts, totalling to £50k to HMRC in VAT arrears and £4.5k on a company credit card, stacked against his £10k bank balance. John’s typical contract work resulted in the use of multiple, industry-standard software platforms which were up for renewal at the end of the year, coming to £6k.

He contacted Real Business Rescue to explore if his business could be rescued through a Company Voluntary Arrangement to protect his financial standing and reduce the further deterioration of his IT company. Following agreement from the majority of voting creditors, John’s IT business was able to successfully enter a payment plan which allowed for more manageable monthly repayments.

Sell my IT business

As an alternative to liquidating your IT company, you may consider selling your distressed IT business. There is a market for prospective buyers specifically looking to purchase struggling businesses, in the hope of facilitating a turnaround. Selling your IT business in this condition on the open market may generate more favourable returns to creditor than taking if you took an alternative exit route. Once a company becomes insolvent, the financial worth is likely to significantly drop, leading you to divide the more profitable aspects of your business against the loss marking elements, marking them for sale.

When entering the business sale process, you will need to carry out a business valuation of your IT company to determine the financial worth and establish an asking price which accurately reflects market value. If your IT business has a strong historical track record, even if this has been hindered by current economic pressures, prospective buyers with investment potential may see your business as a desirable acquisition opportunity.

During the preparation stage, your company assets, liabilities and company cash flow will be assessed to gauge the financial health of the business. These two factors will determine if the business is insolvent or close to collapse. The business transfer market during the coronavirus pandemic predominantly consists of cash buyers holding tight to their savings, seeking to make a worthwhile investment during a period of low market competition. As proceedable buyers look to embark on their next business venture, we can help source a buyer for your IT business.

Rescue my IT business

Our licensed insolvency practitioners can quickly ascertain whether your IT business can be rescued through a restructuring strategy, such as a Company Voluntary Arrangement (CVA), Fast Track CVA or Company Administration. A CVA is a formal insolvency procedure administered by a licensed insolvency practitioner to restructure your creditor liabilities into affordable repayments. This can help lighten the load, freeing up cash to effectively maintain company operations.

In order for a Company Voluntary Arrangement to implemented, a minimum of 75% of creditors (by value) must agree to the proposal. Consent is likely to be granted only if you can demonstrate the viability of your company and its ability to keep up with the proposed repayments set out by the CVA for the duration of the agreement. By centralising your creditor liabilities into one monthly payment, you can keep better track of your finances and forecast company cash flow. If your business is on the firing line of creditor pressure and legal action, entering into a CVA can protect your business.  

A Fast Track CVA is a traditional CVA compressed into as little as six weeks to help you transform your business under time-sensitive conditions. If your business is severely distressed and faces the imminent threat of insolvency, a Fast Track CVA can help restructure existing creditor liabilities, taking them down to a more sustainable level.

If your business has asset value, Company Administration can help rescue your business by realising assets and using the returns to pay off creditors. This can help ease cash flow pressure and maintain long-term financial health based on your existing commitments and ability to repay. During the administration process, your business will be protected against legal action from creditors.

If your business requires an emergency cash injection to enable business growth, accessing commercial finance can help your business flourish without restrictions to company cash flow. There are numerous forms of commercial finance which can help you seize opportunities, meet consumer demand and fulfil large volume orders. Sourcing capital appropriate to your IT business can help promote sustainability and ease long-term development.

If your business is caught out by long waiting times for invoice payments between contracts, causing acute cash flow worries, this gap can be bridged by invoice finance. Taking out an invoice factoring or discounting facility can help you unlock funds tied up in invoices for services fulfilled before clients settle your invoice. By accessing these funds in advance, you can make up for time which would otherwise be lost waiting for payments to drop in.

If you require new equipment, machinery or vehicles to fulfil growing demand or to expand your service offering, a type of asset finance, such as hire purchase, can help you access the equipment you need in an affordable manner. Asset finance can give you immediate access to equipment which would otherwise take years to purchase, supercharging the growth potential of your business. There are several finance options which we can provide access to through a number of trusted and competitive sources. Contact a member of the Real Business Rescue team to determine the best route to rescue or refinance your IT business.

Director redundancy for IT businesses

As with other employees who may be entitled to redundancy pay, company directors are often also entitled to redundancy pay in the event of their company entering an insolvent liquidation procedure. If your business enters company liquidation or company administration due to insolvency, you may be entitled to redundancy pay as the company director. The average claim is £9,000, and you may also be able to claim for additional statutory entitlements such as notice pay, holiday pay and unpaid wages.

To claim director redundancy, you should have a contract of employment with your limited company, work a minimum of 16 hours per week and take a regular salary through Pay As You Earn (PAYE).

Director redundancy claims are paid out by the Redundancy Payments Service (RPS) through the National Insurance Fund which is set aside to fulfil statutory entitlements in the event of redundancy. Your appointed licensed insolvency practitioner can refer you to a regulated claims management company who will be able to assess your claim for redundancy pay for company directors.