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Company Insolvency in Scotland

Is there a genuine company rescue culture in Scotland? There is only one company driving the rescue culture in Scotland, and you have found it!Our firm KSA Group, who run this website, are responsible for a significant proportion of CVA led rescue work in Scotland.If you run an insolvent or struggling Scottish company the chance of rescue is low. Amazingly, less than 1% of insolvent companies are rescued by a company voluntary arrangement or CVA each year!  This is compared to England and Wales, where proportionally, the CVA is used 4 times as often.So always ask your advisors these questions - What about a CVA - would that work? What is the comparison between CVA and liquidation? What is the comparison between CVA and administration?

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Company Insolvency in Scotland
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Liquidation Myths and Untruths

in Company Liquidation

Below are the most common reasons why people are discouraged from taking necessary action to liquidate their company.  In some cases actually trying to avoid liquidation by selling the company.  Reputational damage If you do not pay your creditors you will suffer reputational damage whether you have sold it to another company or liquidated it formally.  You may not be able to get business insurance and your current insurance may not be renewed if you have another company. This is completely untrue.  We liquidate companies all the time and the directors do not have this problem.  They might have issues getting cover if they do it more than once.  Some very riskaverse insurers might turn you down but there are literally thousands out there.  There may be a tiny increase in the premium and you may have to answer a few more questions for the insurers piece of mind.  You won't be eligible for any business finance or loans from banks or other lenders Again this is simply not true.  All banks and lenders recognize there is some risk in running a business and a failure of a start up or a liquidation is not going to be a problem.  It will be if there appears to be a pattern of multiple liquidations though.  Even then it will not have any affect on your personal credit rating.  Company credit scores are totally separate.  You will be disqualified as a director if the company goes into liquidation This is completely wrong. Only if you have been fraudulent or deliberately misled creditors knowing the business is going to fail will you face disqualification or be personally liable for the debts (note that if you have personally guaranteed loans then yes you will be liable ). This worry tends to make directors “freeze up” and take no action out of sheer panic.  You can’t be a director again if the company fails Completely wrong again (see above).  You may not be able to obtain another VAT registration. If you do, HMRC may require you to pay a significant deposit. If you owe the HMRC a substantial amount of VAT then they will wind the company up with a petition, so it will be liquidated anyway. The former directors during the time the money was owed will be on their radar.  It is better to do a voluntary liquidation in these circumstances.  Yes you may need to provide a deposit in a new company but probably only if you owed them substantial sums.  Large companies and local authorities wont grant tenders to directors of liquidated companies What is actually being said here is that large companies won't give tenders to insolvent companies!  Well of course they wouldn't.  A previous liquidation by a director will not preclude them.  There is no mention of any such exclusions in the The Public Contracts Regulations 2015.  The NHS will not employ anyone who has liquidated a company Err no.The one area where liquidating a company can have some personal issues is if you are going to work in very sensitive finance areas and perhaps national security.  This is mainly because they worry that a creditor could apply pressure on you or you could be more easily bribed if you have lost a lot of money in the past.  However, avoiding voluntary liquidation may well result in a compulsory court liquidation process that is likely to lead to even worse outcomes. 

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Liquidation Myths and Untruths
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Secured And Unsecured Creditors – What Is The Difference?

I am confused about secured and unsecured creditors.  What is the difference? As a director of a company that is doing well and making money you may have no real understanding about the important differences between certain types of creditors.  The only time it really comes up is if you apply for a loan for the business and the lender talks about security and the loan being secured etc. Secured Creditors A secured creditor is a creditor that has security over an asset or assets of the company. So, if the company can't pay then they have the right to the proceeds of the sale or proceeds of the asset.  This is enabled by a legal document called a charge or debenture.  There are two kinds of charge;  A Fixed Charge and a Floating Charge.  The difference is quite hard to explain in a few words so we have a dedicated page on the differences.  Have a read here on fixed and floating charges.  A fixed charge is essentially a charge on a very specific asset whereas a floating charge is across a range of assets or asset that can change.A charge is a bit like a mortgage on your house.  If you fail to keep up your payments then the bank can effectively force the sale of the asset and reimburse themselves.  In a company situation if the secured lender is owed money then they can "force" the company into the hands of administrators who will pay them having sold the assets.  This description is simplistic and is more akin to the old system of receivership but it illustrates the principal. Unsecured Creditors These are essentially creditors that have no security over the assets.  This can be a trade supplier, HMRC, a utility company.  Banks will often lend without security but they will charge a higher rate of interest to offset the risk they can't get their money back.Be aware though that some creditors are called secured as they have a personal guarantee from the director and they may use terminology like "secured against the directors personal assets"  In insolvency law they are not secured and so come after the secured creditors that have a "charge" over the company's assets when money is paid over in the event of a terminal insolvency event like liquidation. What about defacto secured creditors? These are creditors that do not have any security over the company's assets but they have control over the company in that they can shut it down.  An example might be the creditor that runs their proprietory software, or their means of payment (this happens when Amazon have lent the company money to develop their online shop)  such creditors are more properly referred to as "ransom creditors". Ransom creditors are more important if the company is insolvent but could be rescued and so need to continue to trade.  So they need to be kept happy!In a liquidation scenario they would be behind a secured creditor that had a charge over the stock for example.For a more detailed explanation of the priority of creditors in an insolvency situation then please look at our page on creditor priority.  There is even a handy infographic on there too. 

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Secured And Unsecured Creditors – What Is The Difference?
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How to Liquidate A Company With No Money

in Company Liquidation

Dissolution as a way to close a company with no money If the company has no money and it needs to close down then, providing that it does not owe creditors substantial sums, it can seek to be struck off or dissolved.  This process is known as dissolution and is governed by Sections 1003 to 1008 of the Companies Act 2006 (formerly Section 652 of The Companies Act 1985)However, bear in mind that dissolving the company (removed from the Companies House Register) can only happen if the following conditions apply:The company has not traded for three months; there must be a genuine cessation of trade. The company has no assets, property or cash at the bank. The creditors are informed, requesting their permission for the company dissolution. Creditors are given three months to consider the request to dissolve the company and can reject such a request. The company has not changed its name during this period. The company has not disposed of any property or assets (this may include land and buildings, plant and equipment, debtors and other assets).If the company does have debts, say about £5000+, then really the company needs to be liquidated.  A company that is insolvent will need to be liquidated using either a Creditors Voluntary Liquidation (CVL) or the creditors themselves will petition the court, using a winding up petition, to force the company into a court led process also known as a compulsory liquidation.So, if the company has no money and the directors do not have the funds to go down the route of a CVL then they will need to brace themselves for the compulsory process.  This is risky for them personally and is not a pleasant process.  What is more it can take about a year to be completed stopping the directors from moving on with their lives.  This will be the consequence of running down all the funds in the company.Even if you do manage to dissolve the company with debts then it can actually be resurrected up to 3 years later and wound up by court with the directors being investigated.  This is covered by the The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act. What about using directors' redundancy to pay for the liquidation? Beware companies telling you this.  Directors will need to show that they were legitimately employed i.e. being paid a proper salary via PAYE for the work they have done.  Being paid for holidays and having a proper contract.  The Redundancy Payments Office (RPO) are routinely rejected directors claims as they see their "salaries" often as just extracting sums from the company in their capacity as office holder.  If they are working all hours on the business but only paying themselves £700 a month on PAYE then that is below minimum wage so they are not actually "legally employed" Can I liquidate the company myself? No you can't. It is true that only its shareholders can start the process but a licensed insolvency practitioner has to actually do the liquidation.

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How to Liquidate A Company With No Money
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Why We Are Experts At CVAs! Read Our Story Regarding This Rescue Mechanism

The KSA Group started taking formal insolvency appointments in 2009 with the merger of KSA Group and Marlor Walls in the summer of that year.Since then we have learned a massive amount about the technique, we’ve gained experience from dealing with over 320 CVA appointments between 2009 and September 2022 . That’s 320 crisis situations - devising appropriate rescue and turnaround strategies together with our clients’ boards of directors, their lenders investors and stakeholders like creditors, landlords and employees.Many in the insolvency markets have a negative approach to the CVA tool. Variously over the years we have been told that “CVA doesn’t work, they are never the best solution, they hardly ever succeed. Creditors get nothing. HMRC will not support a CVA” and we understand that approach. Often clients or prospective clients report to us that other insolvency firms rubbish the CVA tool. Perhaps that’s why CVAs are not that common. Only 175 have been approved nationally in the year to 30th December 2023.We beg to differ. A well structured, “fit, fair and feasible CVA” scheme can:Rescue viable businesses when a critical event has occurred. Help a determined management team rebuild a failing business. Save jobs of employees. It is likely that KSA saved over 11,000 jobs from 2009-2022. Save directors livelihoods and health. Return money to creditors: KSA has distributed £31m to creditors 2009-2022. This excludes secured debts and secured factoring facilities, much of which have been or will be repaid. Repaid £17.9m to HMRC between 2009 and 2023, remember this for the most part when HMRC was an unsecured creditor (2009-2020). That’s taxpayers money. Saved creditors money. Preserved 320 customers for thousands for suppliers, accountants and professional advisors.Nobody knows more than the KSA team, that CVA rescues are tough to construct, tough to implement, and tougher still for companies to successfully recover from.  We have filed more successful CVAs than any other practitioner.  We can send the research to you if you want. Please email robertm@ksagroup.co.uk for the FOI request reply from Companies House.The London Gazette (the official paper of record dating back to the 17th Century) has published an article about CVAs written by Keith.Diligent and organised directors can use this enormously powerful tool, case law and best CVA practice to drive a turnaround but only if guided by experienced turnaround and insolvency professionals. Be under no illusion this is tougher on the directors than anything they will do in their careers. Emotionally, intellectually and physically the CVA led turnaround requires directors to have resilience, physical and mental determination and a good guide.Of course, not all CVAs reach full term but the process secured jobs, paid back creditors a good chunk of what they were owed and with that helped reduce directors liability under their personal guarantees!Conversely, some clients paid off a 3-5 year CVA scheme debts in 6-18 months. Others went through mergers and acquisitions processes, which preserved jobs and businesses. Many plodded on to successfully pay back the CVA as planned. Still the key for us is we did our best to help our clients and creditors recover from a crisis.It has to be said that even with KSA’s “evangelical zeal for CVAs “ as an insolvency firm, the majority of our work by case numbers is normal voluntary liquidations and administrations. Too many SME directors leave the decision to take advice from the insolvency world far too late. Would we have rescued more of these liquidations had the directors only approached us sooner? Impossible to tell.Our final point would be to funders, lenders, investors, VCs and family office investors. In the main, secured creditors stand outside of a CVA process which can lead to dilution for preferential and unsecured creditors. What do you have to lose by encouraging your clients or customers to take advice on RESCUE options like CVA first?The CVA team at KSA group is made up of creative turnaround advisors, creditor liaison experts, tough debt negotiators, brilliant financial modellers and pragmatic insolvency practitioners. We will always look at rescue and closure options impartially and based upon our professional assessment of viability. Yes many directors come to us liking the CVA option, unfortunately many of these businesses or directors simply don’t have the necessary attributes for a rescue.Now, as a team we have, collectively over 500 company voluntary arrangement deals, built, filed and approved by creditors, we believe we know a fair deal about this rescue tool! Get in touch if your client, customer, investee or your company is interested in leading edge CVA advice. See our expert guide for directors below.DOWNLOAD OUR 69 PAGE GUIDE ON CVAS

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Why We Are Experts At CVAs! Read Our Story Regarding This Rescue Mechanism
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What is an Insolvency Practitioner

in Company Liquidation

An Insolvency Practitioner (IP) is a professional who is authorised, and licensed, to act in the interests of an insolvent company, partnership or individual.  In respect of a company, they aim to either rescue it or wind it down in a fair manner to maximise the interest of all the creditors according to the law.  They carry out their work in accordance with the Insolvency Act 1986 and the rules of their regulatory authority such as the Insolvency Practitioners Association (IPA),  the ACCA, ICAEW, or the ICAS. Should I appoint an Insolvency Practitioner? Directors are most likely to get in touch with an insolvency practitioner if they are worried about the financial situation of their company.  They may face serious legal threats from suppliers, banks, HMRC, and may even face petitions to wind their company up. It might be that bailiffs have visited the registered office.An insolvency practitioner may also be appointed by the court, where a petition to wind the company up has come from a creditor.  In addition, a secured creditor, such as the bank or factoring company, can appoint an insolvency practitioner as an administrator i.e. put the company into administration resulting in you losing all control.So, it is generally advisable to seek the services of an insolvency practitioner as soon as you are aware that your company is insolvent.  If you are not quite sure if this is the case, then read our Insolvency tests page.  What are the roles of an insolvency practitioner? Liquidator Once a liquidator is officially appointed, they oversee the closing down the business and investigating the circumstances that led to the company’s insolvency.Their main purpose is to convert any remaining assets into cash and pay as many creditors as possible with those funds, hoping to pay dividends too. However, some creditors may not see a return due to liabilities that outweigh the financial worth of the remaining assets. Liquidators ensure creditors are all treated in accordance with their legal rights.A liquidators role involves a variety of tasks: arranging meetings, completing paperwork and investigating the directors’ conduct. Administrator When a company goes into administration, the insolvency practitioner effectively runs the company for the benefit of the creditors.  They will try and sell the business assets. If there are no takers, then they will wind down the company.  Administration’s primary aim is rescue and it needs to have a better result than liquidation for the creditors as it is a complex and more costly process. Nominee and Supervisor of a company voluntary arrangement. A company voluntary arrangement (CVA) is an insolvency process that allows a company to pay off a proportion of its debts over an extended period of 3-5 years.  The arrangement must be agreed by the creditors.  The role of the IP as a nominee is to ensure that the proposed CVA is “fit, fair and feasible.  As such they need to be satisfied that the company has a reasonable prospect of rescue and can afford the payments to the creditors.  As supervisor, the insolvency practitioner is responsible for collecting the payments from the company to pay back the creditors, known as a dividend.  If the company cannot pay, then the supervisor will wind up the company as liquidator. What are the qualifications needed to be an insolvency practitioner? An insolvency practitioner will have passed the Joint Insolvency Examination Board (JIEB) exams which are known to be very tough.  Due to the financial nature of insolvency most practitioners will have extensive experience as an accountant and may well be qualified either by the ACCA, ACA and CIMA.  One particular reason why insolvency practitioners need to be well qualified is that it should be remembered that an IP acts in their personal capacity when dealing with insolvent companies.  They are not protected by the company they work for.  When taking appointments they have to take out an insurance policy to protect creditors from losing out if they are negligent or criminal. How can I find an insolvency practitioner? Most insolvency practitioners work at a firm such as us KSA Group.  Be wary that many people offering advice to insolvent companies are not actually licensed to take on appointments but will just take some fees and then you will end up having to appoint one anyway or you firm will be wound up by the court.  To check if someone is actually licensed then you can search thehttps://insolvency-practitioners.org.uk/ipa-search-members/https://www.icas.com/find-a-cahttps://www.gov.uk/find-an-insolvency-practitioner

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What is an Insolvency Practitioner

A Guide To Debt Finance and Refinancing

Are you running out of cash waiting for the business to make a profit or can't collect money in fast enough? Almost all businesses need to go through periodic refinancing exercises, whether replacing bank facilities, renewing overdrafts, obtaining bank term loans, EFG loan guarantees scheme loans, factoring/ invoice discounting or capital expenditure requirements. This is normal business practice.Raising working capital is an important plank in any growth plan. Since the 2008 banking crisis and new rules being imposed raising finance has become more difficult and more hassle.Where a company has encountered a significant downturn event or is under pressure, then the directors must consider whether raising further finance against assets is the solution to their problems. As the current market for business changes and evolves almost daily, we cannot provide an exhaustive list of the financial products available but we give a simple guide to the options available to you below.We assume that the business is not a prime candidate for lending and that it needs working capital. Refinancing Remember, this section is not designed for ordinary business financing solutions, rather it is for companies under pressure, who need to find adequate working capital.Consider the products, weigh them up against the circumstances you find yourself in and decide. If you want help to decide and find the most appropriate suppliers of finance, please contact us. We know and have access to dozens of providers of these products and can point out the pros and cons of each.Bank Overdraft Enterprise Finance Guarantee Loans Factoring and Invoice Discounting Asset Refinance Credit Card Merchant Advance Stock Finance Venture Capital Business Angel Investment Directors Loans (Simply what it says!) Crowdfunding Peer-To-Peer Finance (P2P) Company Voluntary ArrangementAfter all that are you confused? Want help to decide what is appropriate? Contact us - call us FREE on 08009700539 or fill out the contact us form. Bank Overdraft It may be possible to obtain temporary increases in facilities from the bank although due to regulations (BASEL III) banks are keener to convert overdrafts into loans. If the problem can be demonstrated to be short lived the bank will often want to try and help. If the problem looks more deep-seated the bank may want more investment from third parties (you). Prepare good information, your team's arguments and talk to the bank - early enough. Don't wait until you cannot pay PAYE and VAT as this is a sign that the company is probably insolvent. Rarely will banks allow extension of facilities for this purpose.If, however, your business looks like turning the corner you could offer to provide additional personal security such as personal guarantees (PG) secured against your home. If you are not prepared to back your hunch with a PG, then ask yourself why should the bank provide money at increased risk to the bank?Advantages Decision making process is usually short - if you have good information to give the bank. The existing relationship is very valuable - banks don't like losing customers. It may ask for more detailed work to be done on the figures, (despite the cost) this can a be valuable exercise. It may help pave the way to other financial products from the bank in future.Disadvantages If the bank cannot see how its money can be repaid (serviceability) or cannot see how it can get the money back in the event of liquidation (security) they will not lend. Ill-prepared requests for funds will be looked upon less favourably. The bank may want a third view and ask for investigating accountants to examine the business. It may be more costly than existing finance.The bank will probably want more security from the company and the directors - personal guarantees may be demanded or increased if already in place. Enterprise Finance Guarantee Scheme A government backed loan scheme to assist SMEs (small to medium enterprises) with working capital requirements. Typically the DeBIS (Government Business Department) underwrite up to 75% of the loan. Banks vary in their approach to the scheme but the DeBIS is actively encouraging its use.Advantages It can be good value but is never quick to raise this type of loan. The investment criteria are perhaps less stringent than non-guaranteed facilities. Capital and or interest holidays can usually be agreed. For distressed companies this can be a lifeline while they return to profitability.If you need to raise this type of loan remember it cannot be used to service arrears of VAT and PAYE. Being behind with tax payments  is likely to lead to a  rejection of any proposal for an EFG loan.Disadvantages Not all applications are approved of course. If the company is clearly distressed the bank and or the DeBIS may reject applications. Can you raise enough to provide a solution and adequate working capital whilst you return to profit? Can you service the loan? Merely creating more debt is not a solution where radical surgery may be needed. Also remember that almost always the loan is backed up by a personal guarantee.  If the bank can't get all the money out of you then they can then revert to the government to make up the shortfall.  Think of a CVA and restructure the company's fixed and viable costs AND improve working capital. Factoring & Invoice Discounting You essentially sell the debtor book (customers that owe your company money) to a factoring company who then provide the company with working capital advances (effectively a loan) against that asset. They will provide from 50-95% advance against the debtor book and charge around 0.33% to 2% depending on the number of invoices, the quality of the debtor book and how much work is required.Usually all your future invoices pass through the system and this sharply improves cashflow. Not any more seen as "lending of last resort" factoring is a very powerful tool and there are some excellent factoring companies providing multiple working capital products to tens of thousands of UK businesses nowadays.Some companies can now even offer finance based on one invoice! Call Keith Steven if that product would be helpful to you. This can be used, for example, if you are selling some products to one new customer. The provider just looks at the history of the debtor. Talk to KSA if you need a new factor, specific spot factoring or just some guidance.Factoring means that the customers know you are borrowing money against their invoices from you. Confidential invoice discounting (CID) usually means this lending is discrete and the customer doesn't know.Advantages If your debtor control is poor this can help. It is an extremely flexible form of finance - the facility can rise and fall as your needs dictate. If the company is under pressure and your sales are growing it is a vital tool. Finding the right factor can lead to much more efficient use of your assets and the ability to plan production or activity - thereby creating improved efficiency.If your business is growing this can grow with you, if sales are shrinking it can be a flexible facility but see below.Disadvantages Concentration in one or two customers can cause difficulties. It is perceived as expensive - but it is providing the commodity you need - money. Most banks have a factoring division - they may not be suitable for your business - shop around. BUT in the current climate big bank factoring facilities are less flexible than the small more nimble factoring companies. Any bank overdraft is normally repaid from the advance from the factor (the bank's main security is sold to the factor). If you have very low margins or your debtors pay very slowly (more than 80 days) it is not generally suitable.Talk to Keith Steven on 07833 240747 if you need to find new flexible factoring or CID facilities Asset Refinance or Asset Based Lending (ABL) Most companies depreciate their assets faster than the value of those assets fall. Therefore, there are often "unencumbered" assets to lend against. The assets of the business form collateral for the lender to secure themselves against.Assets can include, property, machinery, stock (see stock finance). Used in conjunction with, say, factoring, this method can provide a package of new finance to overcome distress.Advantages It is usually a very quick method, access can be through commercial finance brokers or other contacts. Contact us by email for help if required. Where a short term crisis (say a large bad debt) has occurred this method can help the company round the problem very quickly by efficiently using its assets to raise cash. Better quality assets such as land and buildings can attract good rates of interest. In 2020-21 there are many new players offering refinance and asset based lending at good rates.Disadvantages Raising finance this way is not cheap. Where the company has unencumbered assets it is tempting to raise cash against them but remember NB: If the crisis is longer term can your company service the debt repayments?Call us for a CVA now! Costs vary but rates of interest on refinancing assets (i.e. where previous debts are repaid and fresh advances made) can be as high as 30%. The value of assets is established by the lender - it is never as much as you expect. Stock Finance (very limited availability) A form of asset finance. Where the business carries stocks that are easily value-able and resold (such as retail or wholesale or where manufacturers hold stock for clients) then stock finance can be raised. The value of stock is usually much less than that on the balance sheet and lenders lend according to their own valuations.Advantages As part of a package of measures stock finance can be useful. It can often be flexible and longer term advances can help cope with trade cycle ups and downs. It can be relatively quick to organise.Disadvantages It can be costly and the stock will never be worth as much as you think. The security may be difficult to assign. If the bank has a debenture in place any finance raised may be taken by them to mitigate the exposure anyway. Business Angel Investment The classic UK equity gap problem is getting worse. Too small for venture capital and too big a risk for the bank - where to turn? Angels can provide a mixture of loans and equity to distressed or struggling businesses. Most come from a business background and have lots of experience. They usually take a longer term view and can greatly assist the directors grow the company.Advantages With bags of experience an angel can be just what the growing or struggling company needs. Chose carefully and the relationship can be very fruitful. The funds can be flexible and inexpensive. Further rounds of funding can be available. The fact that an investor is putting money in can also help persuade the bank to increase funds available.Disadvantages Chemistry can be difficult - they are going to be involved long term therefore will take time choosing their investments. Equity: they will want to hold shares in the company and the depth of the distress or pressure will determine how big a slice they require. Paucity: there are thousands of angels but finding an appropriate angel, convincing them to get involved and getting finance can take many months. Control: many angels will want control at board level. BUT isn't it better to own say 75% of a company with value than 100% of nothing?Speak to Keith Steven on 07833 240747 if you think this is a product that you need.Angel investors often want to see debts restructured either through a CVA or a pre pack. Be warned they never want to risk their money to plug a gap for tax payments for your company, if the company fails they may pick the assets up is a common view.So ask yourself should the company be restructured with a  CVA and hive out BEFORE any new funding comes in? (click links to read more on these powerful tools). Venture Capital Most small businesses in trouble are NOT suitable for Venture Capital. VCs invest in around 1 in 1,000 applications for finance and unless there is a huge growth potential and an almost unique nature to the business it will not get venture capital. If however the company is unusual in the above regard, then contact us by email keiths@ksagroup.co.uk with a synopsis and we will look at the options with you.Advantages Most directors are aware that equity is "cheaper" than debt. Having a quality non executive director to help guide the board (a pre-requisite of most VCs) is also a big plus. The company's reputation and PR are enhanced. Where growth is achieved and prospects remain good, the ability to raise further finance is enhanced.Disadvantages Classically, shareholder directors see the dilution of their equity as a no-go area. Would you rather have 40% of a company worth £10m or 100% of a company worth £1m? VCs only part with money after thorough due diligence, it is hard work and costly. In the end you may not get the money. Only the best management teams with the best ideas win through. It is very time consuming - in a distress situation do you have 3-9 months to wait?No! Use a CVA or pre-pack to restructure the costs, overheads and debts. Then a business angel or VC investor may be interested. Call Keith Steven 07974 086779 for more details. Directors' Loans It may be possible for the directors or senior people to raise funds privately. This can then be loaned to the firm. Tax efficient repayment may mitigate the PAYE due on directors pay. But if the company is insolvent, repaying your loans in advance of the creditors may contravene the law.In the event of a liquidation, the monies may have to be repaid to the company! This is a possible minefield.Security may be taken for the directors loans - but this is a complex area and needs proper advice.Beware you could create a potential preference (s239 Insolvency Act 1986) if you put money into an insolvent company and then pay yourself back!! Call Keith Steven for smart, expert advice 08009700539 or 07974 086779.Advantages It is cheap, you remain in control of the financial process. It is usually a quick method to raise finance. But be warned, taking out second mortgages will require showing the lender the company's accounts. You can repay the loan as convenient to cashflow. It can carry zero interest (you can however charge interest). Personal loans are now more freely available.In 2019 mortgage providers lent less than 30% of the amounts in 2007. A distressed set of accounts will make borrowing harder. You can of course use credit cards and personal loans (unsecured) but the lending criteria for these product have also hardened. Remember if you lend the money to the company and then take it back out BEFORE liquidation, this is a breach of s.239 Insolvency Act 1986.Disadvantages If you had lots of money it would probably already be invested in the business? Can you afford the repayments personally? If the company fails you still have to repay the loans. The bank may take some of their existing advance back after the funds are introduced. Finally, is the money you can raise really ENOUGH money to solve the company's problems? New Finance products Crowdfunding There are several web based crowd funding sites. Essentially you pitch to the investors and if they like your model they will provide equity or debt to the business. You will need a GREAT pitch, good accounting information, forecasts and a business plan.   Read more about crowdfunding here.  This particular type of funding has seen explosive growth in the last year with hundreds of companies now offering shares. Peer to peer finance Investors or companies can lend finance directly to businesses in exchange for interest. Those in need of finance can create a pitch which is then passed from the peer-to-peer platform (e.g. Funding Circle) to investors.Call Keith Steven now for a guide to this innovative route to financing your business. Recovery Loan Scheme See this page Short term loan providers Advantages. Quick and easyDisadvantages - only up to £50,000, set criteria and a personal guarantee will be needed. Credit card finance merchant loans This is like factoring above. Effectively you obtain a loan against the future credit card receipts in the business. So if you had sales of £100,000 on credit or debit cards last year; you can borrow £10,000-£12,000 against this. Great for a short term tax problem say, and relatively easy to obtain with no security; but a Personal Guarantee (PG) will be required.If you have a funding requirement have you thought about postponing ALL unsecured debts, collecting in debtors and work in progress and cutting costs? This huge increase in working capital is the impact a company voluntary arrangement can make.If you're concerned about your business, request our free 40-page expert guide for directors, answering everything from personal guarantees to rescue options.

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A Guide To Debt Finance and Refinancing
helpful advice for trading whilst insolvent

Trading Whilst Insolvent – Worried Directors Guide

Trading whilst insolvent is a legal term used to describe a business which continues trading when it cannot pay its debts and its liabilities are greater than its assets.  It can lead to a breach of several provisions of the Insolvency Act 1986 which can result in the directors being held personally liable

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Trading Whilst Insolvent – Worried Directors Guide

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