Now that you have established that the business is insolvent or facing insolvency, we believe it is vital to establish just what your business and personal objectives are? Clearly, this process cannot be “all things to all men”, but we have set out here the main objectives for business people, their family, their employees and their creditors. Using the links in the text below will take you to the relevant techniques highlighted. But if you want a general outline first, click here Your Options.
Look, in our experience, few people set out to run an insolvent business. Because of many different circumstances, the business is under pressure. As a senior part of that business, you are under pressure too. Often this can be because of procrastination – or the failure to make a decision. Often this pressure is much reduced when a decision is taken. Whether the decision is made to close, or to fight on or to drive a rescue and restructuring, there will still be pressures, of a different kind!
Related to above. It is important to draw a line in the sand. Even if the decision is to explore all options, compare and discuss and then wait for other pieces of the jigsaw to fall into place – that is a decision. But monitor progress and ensure that together you are achieving the set objectives.
Set out a list of all debts, assets and the good and bad parts of the business. This helps you work out “where you are”. This will be helped by doing a simple cashflow projection – we even provide you a free cashflow model to get this done.
Perhaps it is just time to walk away and get on with something else. It is rarely as bleak as you think to close a business – life does go on.
The pressures can be very difficult to leave at work. Your spouse may also be part of the business. If so then involve them in the decision making process. They often have an ability to see past the pressure points to the bigger picture. Decide if the business pressure is worth losing your marriage? If it is viable and you are determined, then think of how to improve the day to day effects on your marriage.
As saving your marriage. Remember a family is much more important than ANY business.
As saving your marriage, alcoholism, stress-related illness and other problems can be caused by business pressure and failure. Consider yourself carefully. Are you the right person for this job? Is being in business a good idea? Is the business viable?
Learn more about CVA, Administration, Trading Out, or Refinance. If it all seems too much for your health and you cannot change lifestyle to avoid the symptoms of business pressure, then consider closure.
This is a perfectly reasonable objective from a human nature perspective. However, be warned that trying to avoid this can lead to problems. Remember the mantra: “maximise creditors interests first”. Of course, you are a creditor or perhaps a contingent creditor, but you are connected to the company and therefore have to (effectively) put all other creditors interests above yours. For example, liquidating a company after paying off the bank overdraft might get rid of a nasty personal guarantee – but this could be a “preference” and a liquidator may seek repayment. Please ask us for free guidance on this by calling 0800 9700539.
This is an area that affects most people we talk to. But, be honest with your assessment of the business’s viability, decide on an appropriate action and explain the decision. If you are strongly in favour of this course of action and demonstrate leadership to achieve it, this is the best way not to let people down. Failure to act is letting people down.
It is possible to keep the business alive but only if there is a reasonable prospect of restructuring, attracting more finance or even a sale of the business. If this is a key objective consider a CVA , pre pack Administration, Trading Out, or Refinance. Achieving a sale in the timeframe available may be very difficult and the value of the business may be very low (or nil) but at least this objective may be achieved. In addition, some of the other objectives on this page will be too.
By law this should be your main objective. If by continuing to trade, creditors interests are compromised, think about closure. CVL, or administration,. However, if the business is viable and if the meltdown of the assets of the business would lead to a minimal return for creditors then consider rescue and restructure.
Another very important area. Sometimes a rescue and restructure that costs jobs is more valuable – it saves the other jobs. However, if the business is not viable, the continuation of trade may work against this aim. Employment and insolvency is a very specialist area, you must take advice on this area. Call our experts on 0800 9700539
Consider the personal objectives above.
It is sometimes easier not to make a decision for fear of getting it wrong. After all your business is a living, changing, moving thing… BUT we always recommend making a decision and working hard to achieve the outcome. In our experience, the uncertainty that insolvency creates can be very debilitating. You will become less and less effective as a manager and the business will suffer.
For example, this could be a long-term lease or contract. Conventionally this could be only be avoided in liquidation. However, speak to our experts with regard to how to crystallise such liabilities, whilst also restructuring the business.
As you may know, this is a difficult area, obviously, we all have to comply with laws we are aware of. But if you do not know what the fiduciary duties of a director are or what transactions you may or may not undertake when insolvent – how can you comply? Take advice, email us, speak to a commercial lawyer or speak to an IP. Our free advice line is 0800 9700539.
Again, perfectly reasonable and achievable, sometimes a pragmatic approach to this is closure. CVL, Administration. However once again if the company is viable think about the rescue options.
This is an area that affects most people we talk to. But be honest with your assessment of the business viability, decide on the appropriate action and explain the decision. If you are strongly in favour of this course of action and demonstrate leadership to achieve it, this is the best way not to let people down. Failure to act is not.
This is a favourite question of directors and or shareholders. If you have signed these documents we cannot take that away. But if the business is VIABLE and by using appropriate techniques you may be able to mitigate, reduce or even pay off the debt thereby reducing the PG’s.
Written ByKeith Steven
Turnaround Director
Keith is the Turnaround Director of RMT KSA Insolvency Practitioners which has been established for 25 years. The company has undertaken more CVA led rescues than any other firm. Read our case studies to see how.
Guide To Directors Disqualification
If your company is struggling, you’re likely worried about everything, but one fear that keeps directors up at night is the possibility of being personally held responsible. And, to be frank, the legal jargon around director disqualification can feel overwhelming.The good news is that a company going into liquidation does not result in an automatic ban. Disqualification only happens when a director has been found to have acted in an unfit manner, either negligently or wrongfully. We’re here to help you understand what that means, and what you can do about it.How Do You Know If You’re at Risk? The Department for Business and Trade (DBT) investigates directors based on “unfit” conduct. Based on our years of experience, these are the most common behaviors that can trigger a disqualification investigation:Wrongful Trading: This is the most serious issue. Continuing to take credit or trade when you knew, or should have known, there was no reasonable prospect of paying creditors. It's a very difficult and stressful judgment to make, but it's crucial. Taking Excessive Salaries: Taking a large salary or excessive drawings while the company's financial position is poor. Neglect of Director Duties: This isn't just about wrongdoing; it's about not doing your job. Failing to file annual accounts on time or keep proper company records can be seen as an indicator of unfit conduct. Misusing Funds: One of the most common red flags today is the misuse of government loans, such as misrepresenting facts on a Bounce Back Loan application or using the funds for personal gain.The Investigation and Its Consequences When a company goes into liquidation, the liquidator must submit a report on the conduct of all directors to the DBT. This is often called a "D report." If this report indicates wrongful conduct, the DBT can seek a court order to disqualify a director for a period of 2 to 15 years.A disqualification is not a slap on the wrist. It’s a complete ban that prevents you from acting as a director or being involved in the management of any company during that period. Doing so is a criminal offence that can lead to fines, imprisonment, and personal liability for company debts. We understand how serious and terrifying this is, and it's why it is so important to get expert advice early. Case Study: The Danger of Wrongful Trading In a recent case we handled, a director of a small company continued to trade for six months while the company was insolvent. The director was trying to save their business and was emotionally invested in continuing the fight for survival. However, in doing so, they took a salary and paid their own personal taxes while allowing debts to HMRC and suppliers to grow significantly.When the company was eventually liquidated, the investigation found that this action was not in the best interest of the creditors as a whole. While the director did not go to prison, they were banned for 10 years and held personally liable for a portion of the company’s debts. This is a tough lesson, but it shows how crucial it is to get a handle on the situation before it gets worse.How to Protect Yourself and Your Family If you're worried about wrongful trading, the single most important thing you can do is to act early, get professional advice, and show that you've been acting sensibly, responsibly, and reasonably throughout the process.Get Advice Early: You are not alone. As soon as you feel overwhelmed, seek professional advice from a licensed insolvency practitioner who can help you understand your options. Make and Document Decisions: Hold regular, minuted board meetings and keep a clear record of all key decisions you make. This shows you were acting responsibly. Consider a CVA: The Company Directors Disqualification Act only applies when a company enters liquidation. It does not apply in a CVA, so a CVA does not require any investigations into a director's conduct.If you are facing the threat of disqualification, it is vital to seek legal advice immediately from a corporate lawyer with experience in defending such actions.Need to Talk? We're Here to Help. If you're worried about your business or a potential conflict of interest, we can help you understand your options and take the strain off what’s happening. Our team of experts is here to provide confidential advice and support.ReferencesGOV.UK – Company Directors Disqualification Act 1986 (CDDA) GOV.UK – Directors’ Responsibilities in Financial Distress
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