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Business insolvent? A guide to your options

3 September 2015

Falling behind with tax payments or dealing with aggressive creditors can be stressful and worrying, especially if you’re unsure what do to next. Becoming insolvent doesn’t mean the business should close down – there are still ways to turn things around.

Understanding the options available to you can help relieve some of the pressure and give you a chance to consider all outcomes for the business. Take a look below:

Trading out

This is a common way of handling financial problems if the business is viable and is suffering in the short term. Even the largest companies that fall in to cash flow difficulty can be helped by securing extra finance or restructuring. 

Take notes of every decision, meeting and correspondence with creditors and if negotiating prices, have a well-thought and realistic plan in place. Work on daily cash flow and reduce any non-essential costs to save money.

As well as cutting costs, it may be worth looking into alternative finance to improve working capital – however, be careful. It’s bad practice for a business to rely on regular loans or funding to keep going. A more formal insolvency approach may be needed to support the business.

Time to pay (TTP)

A time to pay arrangement with creditors (like HMRC) allows the business to pay back debt, for instance VAT, PAYE or Corporation Tax, over a set period of time. This kind of deal can ease pressure while the business continues trading. View our TTP page for more information. Email if you would like a free pack of templates and guides to assist your application. 

Company voluntary arrangement (CVA)

This is a formal deal between the company and its creditors whereby a proportion of debt is paid back usually over three to five years. Often the return is seen as ‘x’p in the pound with some debt written off. The director(s) continue to run the business during the CVA. 

We have helped a number of companies across all industries enter a CVA – see our case studies page for some examples. 

Administration and pre-pack administration

If legal action is looming, appointing an administrator to put the company into this procedure will protect the business and its assets. Once administrators take over the company, they will look at all possible options for the business to repay creditors.

If the business is viable, it may be possible to exit into a CVA once legal action or creditor pressure has stopped. Alternatively, administrators may find the best solution is to sell the business and assets to raise money for creditors.  

Pre-pack administration

This is where the business is sold to a third party of new company (newco) upon the appointment of administrators. Jobs can be transferred over and the business can continue trading.

Creditors voluntary liquidation (CVL)

Considered as a last resort, this procedure involves a liquidator selling the business and assets, then equally dividing proceeds (if any) between creditors. Sometimes the business may no longer be viable or the director wants to close it down and move on. It’s called creditors voluntary liquidation because only creditors can appoint a liquidator to wind the company down. Directors can initiate proceedings by calling a meeting with creditors and going from there.

Free consultation

Directors should always act to maximise creditors’ best interests. Failing to do so could result in personal liability or disqualification.  If in doubt on what to do, seek advice and ensure records and accounts are clear and up to date. Call us on 0800 9700539 if you would like to talk through the options for a particular situation. 

Browse our expert guides on CVAs, directors duties and warning signs of an insolvent company. 

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