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Partnership Trading Out FAQs

11 August 2017

Partnership Trading Out FAQs

Q: The partnership is struggling, but not that insolvent, can I safely trade out by cutting staff and overheads?

A: Even if the business is insolvent that does not mean a formal insolvency action is the right way forward. If you can produce a recovery plan that is achievable and that maximises creditors interest then this can be a good way forward. Many thousands of partners do this every year and recover well. Our advice is to produce your plan, discuss it with your colleagues or senior people and then embrace it. During the course of the recovery stage constantly review the process, minute your meetings and compile information as to your actions. In the future if the plan does not work this helps defend your actions.

In our experience making honest mistakes whilst trading out can be easily rationalised after the event if this information is to hand. But merely verbally stating that it seemed a good idea at the time does not convey a sense of prudent and diligent actions having been taken. In other words cover yourself in case the plan fails.

Call us if you would like our help.

Q: How can I go about cutting employees when we cannot afford the redundancy payments?

A: Consider contacting the DBIS. Under the hardship scheme the business may be able to (provided conditions are met of course) borrow the redundancy payments if it can demonstrate an inability to meet the payments.

Q: What happens if the trading out plan does not work?

A: Consider the facts regularly, if the plan is clearly not working then take advice from professional advisors or a turnaround practitioner such as KSA Group 08009700539.

Q: I have got most of my creditors to agree to a deal over time, but one large creditor insists I pay them in full before supplying any more goods. They are critical to my future survival - what do I do?

A: A common question that insolvent businesses face. This is a technically difficult situation and one that needs specific turnaround or insolvency advice.

Generally, the technical answer is that you may not prefer (put the creditor in a better position that it would otherwise have been but for your insolvency) a creditor. If the business eventually failed and you entered bankruptcy, such transactions can be reversed by a trustee in bankruptcy / court process. However the pragmatic answer is - if payment to that creditor, at the same time as doing a longer-term payment deal with others, ensures the overall survival of the business, then that may be a correct decision to take. If the overall plan MAXIMISES THE INTEREST OF ALL CREDITORS then it is a logical step to take. Be sure as ever to note this at a management or other meeting in case the plan does not work.

Q: It has got to be better to struggle on with an informal deal than to go into an IVA?

A: Actually often it is the opposite! The IVA mechanism is also a very powerful tool, it draws a line in the sand with all unsecured creditors and allows all creditors time to consider and vote upon a restructure if necessary. Allied to the ability to remove from leases and reduce employee numbers it is a very far-reaching tool.

Q: Why not just wait and see?

A: You have a duty of care to creditors if your business is insolvent. Failure to take action can be construed as badly as acting wrongfully. In any case procrastination and inaction are always in the list of causes of failure cited by insolvency practitioners.

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