First of all: don’t panic. You may feel like you’re in an impossible situation. But you might not be. There are many options available to you if your business is facing insolvency.
This guide is the first step on your way to solving your company’s financial challenges. We created it to be a reassuring look at the situation you’re in and the Insolvency and Business Rescue options you might have.
There are different potential solutions for business insolvency available to you depending on your personal situation. While this guide will give you a good overview, we recommend that you also talk to an expert. Our business rescue experts and licensed insolvency practitioners will take the time to understand your situation and workout the best option for you.
Your business is viable but struggling
Informal arrangements
Lack of time is most likely to be your worst enemy when trying to save your business. Negotiating informal arrangements with those who are chasing payments can buy you breathing space. If you can show your creditors that you’ll be able to pay the money owing in the future and commit to a plan, this could be a better option for them than if you were to go through a formal process that would leave them with nothing.
Working through our Kitchen Table Guide
Kitchen Table Guide is a good way of deciding where you can make changes and put informal arrangements into place.
Business Recovery
Business recovery has a long-term outlook. It looks at how you can change the use of the resources you have inside a business to maximise its productivity and ability to make a profit.
Because managing the day-to-day operation of a business is full-on, it can be difficult to find the time to sit down and assess the strategic decisions of your business. This is where a professional can help you assess the hows and whys of your financial difficulties, map out a way forward and deliver a solution that fits with your business’ objectives.
Business Rescue
Business rescue aims to secure the short-term position of a business. And you’ll need an expert involved to help. The first thing we do is to establish how much time your company has before business challenges and financial difficulties are beyond rescue. Once this timeline is established, your issues can be dealt with using a priority-based approach.
Cash flow problems
Cash flow problems are the most regularly-seen symptom of a business in need of rescue. The key to finding a solution will be identifying the root causes of the cash flow symptoms.
You’re getting pressure from HMRC, the bank or creditors and facing insolvency
Business debt consolidation
Business debt is the level of money that your business owes – the total amount of money outstanding to your creditors. Business debt consolidation (or corporate debt consolidation) is when existing or future business debt is merged or swapped so that the repayment terms of the outstanding debt can be structured in a more favourable way for your business.
Business debt consolidation can take place through informal arrangements or through formal procedures under the Insolvency Act, such as a Company Voluntary Arrangement.
Business debt restructuring
Business debt restructuring has a similar but narrower scope than debt consolidation. Debt restructuring is the restructuring of longer term borrowing from secured creditors, such as banks or asset-based financiers. Business debt restructuring on its own can take place outside of a formal insolvency procedure.
Solvent restructuring when in financial difficulties
Occasionally a successful company may need to be restructured to allow for a change in direction or to release funds or assets. Any such restructuring will have tax implications and we’re always keen to make sure that our clients do take the appropriate tax advice.
We can introduce you to one our tax partners or alternatively we would be delighted to work alongside your existing accountants and tax advisors.
Business insolvency options if your business is insolvent and needs to close
The following are formal business insolvency procedures that require the involvement of a licensed insolvency practitioner.
Company Voluntary Arrangements (CVA)
We regularly use a CVA to provide a sustainable business with the breathing space it needs to stabilise. It will mean compromise from creditors, in return for payment from future profits in the case of a CVA. But that is better for them than the alternative of a possible no return in a liquidation.
A Company Voluntary Arrangement is a legally binding compromise agreement between you and your creditors, where you commit to pay off an agreed percentage of your debt over a set period of time. The whole process must be overseen by a licensed insolvency practitioner.
Company administration
A licensed insolvency practitioner will put into place a form of legal protection through the courts, to provide a ‘shield’ behind which business rescue can take place.
One of the crucial aspects of entering company administration is that it buys your company time. Effectively, it keeps creditors at arm’s length, providing much-needed breathing space. Any legal action against your company will be frozen for the duration of the administration. Working with the administrator you can use this time to create a recovery plan, which outlines the next steps to be taken.
Insolvent liquidation
Insolvent liquidation can take two forms.
Creditors’ Voluntary Liquidation (CVL)
This is the process for a company director or shareholder to take when they need to close down a limited company that has become insolvent. The CVL will ensure the company meets all legal requirements.
If your company is unable to meet its debts, the directors and shareholders can agree to move the company into liquidation. The assets from the company are then used to pay any outstanding debts to creditors to the extent that the value of assets allow.
Compulsory liquidation
The compulsory liquidation of a company is generally a last resort as it needs to go through the courts, which can be a lengthy process. It’s usually initiated by creditors who want to get their money back.
Because it’s led by the court, once the process has been initiated, a compulsory liquidation is overseen by an official receiver. Before getting to this stage, you should always look at all the insolvent options and alternatives.
Striking off and dissolution
You can apply to close down (or strike off) your limited company – which is also known as dissolving your company – but only under certain conditions. You cannot have traded, sold off any stock or changed your name in the last three months. You also can’t have been threatened with liquidation or have any pre-existing agreements like a Company Voluntary Arrangement (CVA) with creditors.
Company dissolution – beware bona vacantia
The term “bona vacantia” literally means vacant goods and is the legal name for ownerless property, which by law passes to the crown. The directors and shareholders are responsible for dealing with the property of a company before it’s dissolved.
Speak to a licensed insolvency practitioner about business insolvency
Many people contact us to close their business altogether. But our advice is not to panic. There might be another way.
