Written ByKeith Steven
Managing Director
Keith is the Managing Director of KSA Group 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.
Now that you have read how to use the site and establishing insolvency we hope that you agree that it is best 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 take a look at your Options
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 PVA, IVA, Trading Out or Refinance. Achieving a trade 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.
This should be your key objective. If by continuing to trade, creditors interests are compromised think about closure. Bankruptcy. However, if the business is viable and if the meltdown of the assets of the business would lead to minimal return for creditors then consider rescue and restructure. PVA, IVA, Trading Out or Refinance.
If you employ others, this is another very important area. Sometimes a rescue and restructure that costs jobs is more valuable – it saves the other jobs. PVA, IVA, Trading Out or Refinance. However, if the business is not viable continuation of trade may work against this aim. Employment and insolvency is a very specialist area, you must take advice on this area.
Consider the personal objectives opposite.
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 business person and the business will suffer. PVA, IVA, Bankruptcy, Trading Out or Refinance.
As you may already 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 your duties 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.
Again perfectly reasonable and achievable, sometimes a pragmatic approach to this is closure. Bankruptcy. However, if the business IS viable think about the options; IVA, PVA, Trading Out or Refinance.
This is an area that affects most people we talk to. But be honest with your assessment of the business viability, decide on 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.
In our experience few people set out to run an insolvent business. Because of many different circumstances the business is under pressure. As THE senior part of that business you are under pressure too. Often this can be because of procrastination – failure to make a decision. Often this is improved when a decision is taken. Whether closure or rescue and restructure there will still be pressures (of a different kind!). PVA, IVA, Trading Out or Refinance. Bankruptcy.
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.
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 or go bankrupt – 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, 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? Bankruptcy Doing informal deal. If it is viable and you are determined, then think of how to improve the day to day effects on your marriage. PVA, IVA, Trading Out or Refinance
As saving your marriage. Remember a family is much more important than ANY business.
Alcoholism, stress related illness and other problems can be caused by business pressure and failure. Consider yourself. Are you the right person for this job? Is being in business a good idea? Is the business viable? PVA, IVA, Trading Out or Refinance. If it all seems to much for your health and you cannot change lifestyle to avoid the symptoms of business pressure, then consider closure Bankruptcy.
This is a perfectly reasonable objective from a human nature perspective. However, be warned trying to avoid this may lead to problems. Remember the mantra: “maximise creditors interests first”. Of course you are usually the sole person in the business who has given security on your home. Sometimes though if the business is simply not going to work it is possible to avoid losing the house – Informal deal or Bankruptcy .
This is an area that affects most people we talk to. But be honest with your assessment of the business viability, decide on 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.
Joint and Several Liability for Debts in A Partnership
Joint and several liability implies that all members are liable for the partnership debts in full or in part individually, usually dependent on their ability to pay.
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LLP or Company Lawyers Cashflow Problems
We are a firm of very worried solicitors. Our legal practice is a LLP, company or plc. We are under growing pressure from all sides. How can you help us solve these problems, restructure and survive? Help my struggling law firm Read my recent article on LinkedIn about our rescue service for lawyers and how to avoid SRA intervention into your distressed law firm.What should you do if the practice is struggling? First thing to do is to establish if you are insolvent. See the 3 tests below: The Cashflow Test Simply, can your practice pay its debts as and when they fall due for payment? Is the company in arrears with HMRC or trade creditors and not up to date with the bank?For example, if you are not paying the deductions from employees for NIC and Income Tax across to HMRC on the 19th of the month following the month they were deducted, then your company may be insolvent. Have you met loan repayment dates for practice loans or bank loans? Is the VAT late?If your trade creditors sell to you on say 30 days terms and you regularly pay on 90+ days, then the company may be insolvent. The Balance Sheet Test Simply, does your company owe more than it owns, or are your business assets exceeded by your business liabilities? If yes, then the company is insolvent.It is important to point out that this test should include contingent or prospective liabilities. (If you need advice on these issues email us). The Legal Action Test If a creditor has obtained a County Court Judgment, this may demonstrate your company's insolvency and the creditor may petition to wind up the company.If a creditor has obtained a statutory demand for greater than £5000 (from 1st October 2015 - previously the threshold was £750) and it remains unpaid for more than 21 days, then the creditor may petition to wind up the company. What Next? Second thing to do is to use our free daily cashflow spreadsheet (EASY TO USE) and set out the expected cashflow in and out of the company over the next few months.This tool will set out what the likely cash position is in the business over the next few months and will help YOU decide which is the most appropriate option. If cash is drying up and there is no way to fix it then pre-pack administration or liquidation are the two main options available.If cash is tight but still flowing then Plan A or B should be considered. If you know that good cashflow is coming through in the next few months then Plan A can be a powerful way to buy that time.Plan B is a company voluntary arrangement, this powerful restructuring technique can help the company survive and make deep seated changes to lead back to profitability in future.Thirdly please read our guides toPlan A trading out and refinancing (avoid insolvency)Plan B Company Voluntary Arrangement (CVA)Plan C Pre-pack administration, liquidation and possible linked personal BankruptcySee how we have helped other law firms!
ReadPlan A for Companies or Partnerships; Avoid Insolvency
Is there a way that I can avoid formal insolvency? Yes, Plan A for companies or partnerships; An informal deal with creditors, coupled with possible refinancing Using the threat of the insolvency options can be like the proverbial Sword of Damocles , you can wind the company up, possibly go personally bankrupt or enter an IVA but the creditors would undoubtedly see a compromise or even complete discount of their debts if that occurred.Being prepared to argue with creditors that the informal route means at least some if not all of their debt is recovered and that this approach will allow you to practice in future, is the common sense solution.KSA Group will always however make sure that the options of company voluntary arrangement and liquidation have been assessed, a statement of affairs prepared and valuations of any properties obtained to counter the why wait for money what if we simply wind the company up? question. The main thing to remember is we are prepared for their aggressive questioning.So pointing this out bluntly, allows us to prepare a plan for the recovery of the creditors monies over a considerable period of time say 8-12 months. Yes even if HMRC has rejected YOUR suggested time to pay proposals.We would generally insist on the following work being part of our restructuring brief;Detailed DAILY CASHFLOW we can provide the tools and assess this for the company. But this MUST be introduced and to help survival you or your admin people must update every day. Statement of affairs for the company. Probably requires a desk top valuation of any corporate property. KSA will do this confidentially as part of the brief. Detailed financial forecasts for the partnership business. What if scenario planning ie what if turnover falls, WIP is not all collected for example? Negotiations with the creditors (usually HMRC and the bank) in person and where required in writing led by KSAs experienced debt negotiators. Possible assessment of your personal property and assess possibility of new debt from property(ies)This process can be delivered in 1-3 weeks from engagement and is led by very pragmatic experts in this field. Before commencing we will set out the strategy plan in writing. This work is always costed in writing in our unique solutions report which is provided FREE after your first meeting with a KSA Director or Regional Manager.Call KSA Group on 08009700539 for detailsA word of warning. If your company or limited liability partnership has relied upon multiple time to pay deals over recent years with HMRC and these deals have regularly not been adhered to, then this first option may not succeed, but we believe it is still worth trying.
ReadGuide To Partnership Voluntary Arrangements
A PVA is formal arrangement between creditors and the partnership, allowing a proportion of debt to be paid back over time. If the partners believe in the fundamental viability of the business and are determined to fight for the business to help survival, then a PVA can be a powerful tool or framework for the restructuring of the business.
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Partnership Administration
A Partnership Administration Order is similar in some ways to Administration for a limited company, but should not be confused with this or administrative receivership. The Partners or one of the partnership creditors can petition to the court for an administration order.
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