Is your Business Insolvent? How to establish your objectives in such circumstances?
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.
Getting rid of the pressure
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!
Crystallising the position – “Where Are We”?
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.
Getting on with your life
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.
Saving your marriage
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.
Protecting your family
As saving your marriage. Remember a family is much more important than ANY business.
Protecting your health
As saving your marriage, alcoholism, stress-related illness and other problems can be caused by business pressure and failure. Consider yourself casrefully. 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.
Avoiding personal liability or personal guarantees
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.
Not letting people down
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.
Keeping the business alive
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.
Maximising interests of creditors
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.
Maximising interests of employees
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
Maximising your own interests
Consider the personal objectives above.
Crystallising a difficult position
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.
Complying with the law
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.
Not letting creditors and customers down
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.
Not letting people down
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.
Avoiding personal Guarantees
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.
Worried about poor cashflow? Covid-19?, How to pay wages on pay day? For expert advice on a range of issues download our free Ultimate Guide For Worried Directors today. Or just call us on 0800 9700539
Please note that the guide was mostly written pre Covid-19 and there have been some changes to insolvency legislation that limits creditors actions and relaxes rules regarding wrongful trading. A new 20 day moratorium for distressed businesses has also been introduced.