Business debt advice - Worried Directors Guide

4 August 2017

Our business is in difficulty due to one old debt. Can you give us some business debt advice?

This is a common situation that arises whereby a business has run up a debt during a period of difficult trading some time ago. Even an extended Bank Holiday or freakish bad weather can allow these debts to build up. In some cases the shear cost of setting up the business has never really been fully recouped. The most common debt tends to be to HMRC as people are paid their wages during a difficult trading period but PAYE liabilities are building up. The taking on of an ineffective employee we also hear is a common cause of problems.

The other perhaps more unusual situation is where a business is doing well but is over trading. See our blog on how this happens. In essence, the business is taking on orders too fast and ends up not having the actual cash to pay creditors as the end product is either not getting to market quick enough or the customers are late in paying. This allows business debts to build up.

There is a saying in the turnaround business which is "we are where we are". So no matter what caused the business debt the directors needs to move forward and take action.

So how can we help with your business debts?

If your business is a company then you have the option of plan A, B and C, If you are sole trader or partnership then option B will be a PVA or an IVA and option C will be bankruptcy. As bankruptcy can impact you very hard it is advisable to seek advice as soon as possible if your business (trading as a sole trader or partnership) start to build up debts.

Well, there is a plan A, B, or C

Plan A is an informal arrangement with the creditors. We can negotiate time to pay arrangements with HMRC which are backed up by forecasts and a statement of affairs (SOFA) of the business's debts. This is not an "insolvency event" and the business's credit rating will not be affected. If other creditors are involved we can use the threat of insolvency that will leave the creditors more open to the something rather than nothing option.

Plan B is the use of an insolvency mechanism called the company voluntary arrangement whereby the creditors are bound by an agreement whereby a proportion of the debt is written off and the remainder paid over a number of years - usually 3-5. This is binding on all creditors as long as 75% by value of the creditors agree. As HMRC are usually the largest creditor and they are on the whole supportive of the mechanism for the right company then there is a good chance of getting this approved.

Plan C is terminal insolvency whereby the business goes into administration or liquidation and is only really suitable if the business is no longer viable and/or the directors do not have the will to continue.

Note:  We do not offer to repackage your business debt into one "manageable amount" which is more common practice in personal insolvency and we do not offer loans ourselves.

We can put you in touch with people who can arrange finance if you wish. However we do advice that you look carefully at what you are likely to be charged as Wonga.com has just entered the market and the interest rates could be very high.

If you are concerned about your business, request our expert guide for worried directors. It helps to explain everything from personal guarantees to legal issues to the various rescue methods. 

The Ultimate Guide For Worried Directors

The Ultimate Guide For Worried Directors

Worried about poor cashflow? How to win new work? How to pay wages on pay day? For expert advice on a range of issues download our free Ultimate Guide For Worried Directors today.