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Options for a struggling business

It can be a very stressful and worrying time when a business is suffering financially. Often it’s difficult to know what to do next or what the right strategy is. Creditors may be threatening legal action, accounts may be in a mess or staff could be worried about their jobs. Depending on the severity of the situation, there will be various actions directors can take in order to avoid further problems.  

There has been a strong turnaround culture for years now and usually creditors, like HMRC, favour rescue methods over insolvency procedures, like liquidation, because creditors generally see a better return in the long run.  It’s important to seek professional advice and consider all the options available and whether each one is suitable for the business. 

Below is an explanation of the most common turnaround and insolvency procedures:

Time to Pay 

This is an informal arrangement with HMRC to pay back VAT, PAYE or Corporation tax debt over a few months up to a year. A deal can be negotiated directly with the Business Payment Support Service or through us. We speak to HMRC daily and can advise on the most suitable proposal for your business by using our own financial forecasts. 

Company Voluntary Arrangement (CVA)

This is a formal turnaround deal between the company and its creditors whereby a proportion of debt is paid back over a set period of time, usually three to five years (some debt is written off at the beginning). The company is protected from legal action while directors continue to stay in control of the company. Unsecured creditors cannot take action for debts incurred prior to the CVA.

Pre-pack administration 

Pre-pack administration is where a company is sold to a third party or new company (newco) upon immediate appointment of administrators. This ensures the business continues to run (even though the company itself dissolves) and staff can be transferred to the new company by TUPE

Creditors Voluntary Liquidation (CVL)

This is considered to be the last resort for companies in financial distress. The company and its assets are sold and turned into cash, then distributed equally to creditors. Only a creditor can appoint a liquidator to liquidate the company, however a director can initiate the process and hold a creditors meeting with the assistance of an Insolvency Practitioner.

If you’re unsure of the right action to take, speak to one of our advisors on 0800 9700539 who can talk you through the options for your business, free of charge. 

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Many thanks for your comments. If you have a private business problem and you want advice give us a call on 0800 9700 539 or email me at keiths@companyrescue.co.uk. If you are a professional advisor with a troubled client, please suggest they visit www.companyrescue.co.uk or contact me as above.


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