It can be one of the most heart breaking realisations of your life: that your business is in serious financial difficulty and may be facing insolvency. It may have started off with a few late payments and now you worry about meeting your debt obligations, or paying your staff, or being able to service your clients effectively.
If you’ve considered insolvency as a possibility then you have already taken a brave and important step. Owning a business is different to simply having a job. You have commitments to staff, suppliers and customers. You pour so much time, effort and emotional commitment into your business, that letting all that go is a terrifying and depressing prospect.
At BCR our role as an insolvency practitioner is to give you clear and honest advice, and help you through a difficult time.
We want to try and give you hope and let you face the future with optimism. Just because you are having financial difficulties does not mean you automatically face insolvency. In many cases your business can be turned around with a good rescue plan. Even if liquidation is your only option, there are still ways to ensure that you and your employees get a good outcome. Insolvency is not the end of your career. With lessons learned, many directors come through insolvency to set up thriving, successful businesses in the future.
It can be very confusing to know where to turn when facing financial difficulty. You may be lucky enough to have very understanding and accommodating creditors, but even the most helpful creditor will not have the best interests of your business at heart. Their priority will be to regain the sums owed to them, plus interest, in the most effective way possible. .
You will therefore find yourself under intense pressure to sell assets, make redundancies and even close your company in order to settle your debts. So where do you turn to for help?.
The very first person to talk to is your company accountant. They will have a bird’s eye view of your accounts and your trading cash flow from the past couple of years. This puts them in an excellent position to advise you on whether or not they feel the business is viable.
There are also some free websites you can refer to which are run by charities or government bodies. In our opinion the most helpful is the Business Debt Line which can be found through their website: https://www.businessdebtline.org/
Their website is full of helpful advice covering topics such as:
- How to deal with court action
- Advice on insolvency
- How to deal with creditors and bailiffs
- How to approach credit reference agencies
- Prioritising expenditure and debts
- Securing emergency funding
- Budgeting for a business rescue plan
You can also call their team on freephone 0800 197 6026. They are open Monday to Friday between 9.00AM and 8.00PM.
If you’re seriously worried about the future of your company, especially if you are already facing action by creditors, the most important person you can turn to is an insolvency practitioner. Don’t be put off by the name. Speaking to an insolvency practitioner does not necessarily mean you are about to go out of business, however it is crucial that you are realistic and clear-headed about your situation. An insolvency practitioner, such as one of our team at BCR, will give you a complete overview of all the options available to you.
Before insolvency is even discussed, every effort should be made to save the business. This is in the interest of all parties, including your creditors. A creditor is very unlikely to regain their full debt if a company stops trading. After speaking with our team, some businesses go on to repay their debts and become profitable again, whereas others decide to close down and explore new career avenues.
How do you know if your business can be saved, and what are your options for business rescue?
As a rule of thumb, if your business model is economically viable, then you may be able to save your business. If you have active customers or a profitable business idea, as well as the ability to reduce your costs, then a rescue plan could be an option.
Business rescue is less feasible for companies that do not have a viable business model. For instance, uncompetitive businesses may struggle to secure enough customers to stay afloat. Or there may not be enough market demand for a business’ product or service. Others may find that the cost of the infrastructure needed to support their service does not give them enough margin to remain trading.
This doesn’t mean that the business cannot be rescued, but the more fundamental the difficulties are, the more it becomes necessary to take a 'root and branch' approach to restructuring the company.
For some companies, financial difficulties are very little to do with their business model, and a lot to do with bad luck. Cash flow is problematic for businesses even at the best of times. Increased costs, late customer payments and large, unforeseen expenses can very quickly put a squeeze on your company’s finances.
Temporary cash flow problems can often be resolved without insolvency. You may need to look at how your business is structured, consolidate your debts or reduce your outgoings, but there is no long-term reason for you to not continue trading. A lot can be achieved with the help of professional mediation from an insolvency practitioner.
If saving your business is a realistic option after full consideration of your circumstances, then you should discuss the following courses of action:
Businesses refinance all of the time; it could be as simple as renewing or expanding an overdraft, or entering into a factoring agreement. Other options include venture capital, director’s loans, asset refinancing or stock finance. However, if your business is already under financial pressure, you need to make a sensible decision about whether taking on additional finance is desirable, or even possible.
A business rescue plan involves a far reaching examination of the causes of your financial difficulty, and establishing concrete steps to rescue the business.
Business rescue involves four main processes:
1) Dealing with immediate legal pressures. Any court action must be dealt with promptly and agreements must be put in place to alleviate pressure from creditors. This gives you breathing space to work on your rescue plan.
2) An in-depth examination of your business, its financial situation and trading model. This will identify the cause of your issues and how each symptom emerged.
3) A set of recommendations can be put together that allow your business to continue trading and meeting its obligations. This may need to be approved by your creditors and enshrined in a Company Voluntary Agreement (CVA). A CVA is a deal made between your business and its creditors to rebuild sales and restore your business to profitability, with repayments being made from future profits.
4) With the assistance of an insolvency practitioner, the rescue plan itself is implemented and monitored.
Without discussing the individual circumstances of your business, it is impossible for us to say whether your company is salvageable or not. Our advice is to get in touch with our insolvency practice as soon as possible, so we can give you the best advice and the strongest hand to play when considering your options.
A business is deemed to be insolvent if its financial liabilities exceed the total value of its assets or if the business cannot pay its debts as and when they fall due.
How insolvency is approached depends on the circumstances of your business, but the process will fit into one of two categories:
1. The business will go into administration.
2. The business will go directly into liquidation, either voluntarily or as a result of a winding up order.
Administration recognises that a company is insolvent. An Administrator will be appointed who will have control of the business on a day-to-day basis. The Administrator has responsibility to the company’s creditors to ensure the fullest possible payment of outstanding debts; this must be balanced against the desirability of the company staying in business.
The purpose of administration is to protect an insolvent company from its creditors while a restructuring plan and/or sale is achieved. This does not necessarily involve the closure of the company.
How Does A Company Go Into Administration?
1) The directors of the company appoint an Administrator.
2) A floating charge holder appoints an Admnistrator.
3) A Court Order.
Pre-packaged administration involves putting a business into administration based on a sales agreement which is determined prior to the business entering administration. Pre-Pack Administration is one of the best ways to continue unbroken trade after insolvency.
The business is placed in administration, then sold back to its existing management (or occasionally to a third party) under a new company structure.
Pre-Pack Administration can relieve the business of its outstanding debt and ensures the seamless continuation of the business, making it a great option for viable companies facing a short-term debt crisis, or if there are immediate threats to a business from HMRC, banks or landlords.
Liquidation, or ‘winding up’, refers to the process whereby a company’s assets are sold, staff are dismissed and the business closed. This only happens in cases where businesses are unable to pay their debts and when no rescue plan is possible.
Liquidation requires the involvement of a Licensed Insolvency Practitioner.
1) Member’s Voluntary Liquidation (MVL)
A decision can be made by directors and company shareholders to liquidate a solvent business and distribute the remaining assets and cash. Tax is due on distributed assets, but this can be reduced to as little as 10% through Entrepreneur’s Relief and Capital Distribution.
2) Creditor’s Voluntary Liquidation (CVL)
When a company is insolvent, its assets can be sold for the benefit of creditors. The idea is to pay a dividend to the creditors that will settle as much of the outstanding debt as possible. The difference between CVL and compulsory liquidation is that this is a voluntary agreement e.g. shareholders place the company into liquidation. A good outcome can still be obtained for the directors and staff of the insolvent business.
3) Compulsory Liquidation
Compulsory liquidation is enforced on a company by a court, after having received a successful winding up petition from a creditor. A winding up petition is always an act of last resort on the part of a creditor. The action will be taken if the creditor feels there is no other way of recovering the debt from you.
Before logging a winding up petition, your creditor must issue a statutory demand for full repayment of debts, and give you at least 21 days to respond. This three week period is crucial, as it gives you time to make payment, discuss amended terms or dispute the claim amount.
With no successful resolution, after 21 days the creditor can apply to the court to have your company wound up.
A winding up petition is an extremely serious action. Needless to say, we strongly advise you contact an insolvency practitioner as soon as you receive a statutory demand from your creditor.
Financial difficulties are extremely stressful for a company owner or director. We have worked with directors who have suffered insomnia, depression and severe physical stress as a result of unaddressed business problems.
Our team at BCR can help put a stop to the worry and long sleepless nights. Facing up to the prospect of insolvency and talking to a professional can feel like a weight has been lifted off your shoulders. After chatting to us, you no longer need to handle this burden on your own.
Are there any trigger points or warning signs you should look for that indicate you should seek professional help? This varies from case to case, but keep your business head on and be vigilant about any of the following situations arising.
Remember our definition of insolvency from the previous section. To be solvent a business should have assets worth more than their liabilities. Insolvency is the inability to meet liabilities because of the financial state of their assets. This is why some businesses can keep going with hundreds of thousands of pounds of debt and successfully implement turnaround plans, whereas others become insolvent with debts of only a few thousand. Every case is different.
As a director, it is paramount that you always have access to your business' most recent and accurate account information. It is vitally important that you draw realistic conclusions from this data, we recommend you:
- Take a look at any situations that could cause you financial difficulty, for instance, what measures would you put in place if a major customer suddenly became insolvent?
- Be aware of financial warning signs, such as pressure from creditors and suppliers.
- Discuss your company’s financial situation regularly with your board and leading shareholders.
- Make sure you consider the interests of your creditors in all financial decisions.
- Put new financial obligations on hold if you are worried about insolvency.
- If insolvency is a real risk, consider stopping trading and taking voluntary action before creditors start pursuing you through the courts.
- Chat to a specialist as soon as possible and follow their advice.
We cannot emphasise enough that the longer you delay, the worse the situation will get. Creditors and the courts appreciate transparency and will usually reciprocate this by being fair and honest with you in return. Prevarication and broken agreements will do nothing to relieve the pressure on your business, and may well make the situation worse.
So call us today. You can reach us by phone on 0333 014 3454 for an informal chat. Every enquiry is treated in the strictest confidence and comes with no obligation to take a particular course of action. So that you understand all the options open to you, your first consultation is free.
At BCR we want to make it clear from the outset that we are on your side. As licensed insolvency practitioners we take our legal responsibilities very seriously.
Many of the clients we have worked with are long established companies who have been very successful in the past, but who saw a decline in their trade either through a change in their market, or through situations beyond their control.
Sometimes insolvency is the best option to resolving outstanding obligations to creditors.
The important factor is to retain as much control as possible. We work with you to get the best settlement for you and your employees. This means avoiding a winding up petition if possible and securing a voluntary liquidation agreement (either an MVL or CVL) or arranging Pre-Pack Administration.
Whatever your circumstances, we offer a full range of insolvency advice, consultancy and support services for businesses of all sizes. We specialise in providing insolvency advice and solutions to SMEs in a wide range of sectors. Our customers include sole traders, retailers, equipment manufacturers, engineers and service providers.
You can take a look at our Case Studies page for more details.
Remember, insolvency does not mean the end for your career, or the end of your business. A lot of people arrive at their first consultation with us feeling dejected and pessimistic, but leave with a new understanding of their future potential. You have every reason to be optimistic. No matter how bad things are, with the right guidance even the most complex insolvency processes can be made fairly straightforward.
We lose count of the number of people we have worked with who’ve gone through insolvency, only to start again and become very successful in their new business. As a director, in most circumstances you will not be personally liable for the debts accrued by your business, so long as you have followed your legal responsibilities.
By following Pre-Pack Administration, many businesses can continue trading seamlessly under a different structure and company name.
All this is possible, and it starts with an informal chat with one of our insolvency practitioners.
Your first consultation is FREE, so get in touch with BCR today to:
- Put an end to pressure from creditors
- Put court proceedings on hold
- Negotiate payment plans
- Choose the right insolvency procedure for your business
The longer you wait, the more difficult it will be to arrange insolvency on your terms, so call us now on 0333 014 3454.