Few businesses can say they’ve never experienced cash flow problems. A late payment from a debtor, technical issues which grind business to a halt, client cancellations or a sudden, unforeseen drop in demand – most companies have temporarily experienced these or something alike. However, if cash flow troubles have been recurring for you and you’ve suddenly found yourself unable to pay your suppliers, you might be seeing final demand letters through your letterbox. Keep in mind at this point that it is better that you take action yourself rather than a supplier taking action against you.
What options should I consider?
In times of difficulties such as an incapacity to pay suppliers, it is imperative that you contact us to establish whether your business is viable, or whether tough decisions need to be made to put debt to bed and ensure your actions aren’t brought into question. We can help you every step of the way no matter what path you choose to go down.
Financing through the storm
One of the first options to consider is commercial financing. The type of financing you use will depend on the type and structure of your business. One of our friendly advisors can provide advice and guidance on whether your company would benefit from any of the options listed, and get you the best quote among the top providers, all completely free of charge.
Payment arrangements (CVAs)
If your company has the prospect of reclaiming profitability, a company voluntary arrangement (CVA) may be the best route for you to take. It involves consolidating your unsecured business debt into one monthly payment which is affordable and allows the company to stabilise itself. It usually lasts for 60 months and is often a better return for creditors than say would liquidation compulsory liquidation rather than accept a CVA proposal.
Terminating the business (CVL)
If it is unlikely that the company would recover, or if you would simply like to wash your hands of the business, a creditors voluntary liquidation (CVL) may be more suitable. It involves the liquidation of the company’s assets to pay creditors and closing the doors of the company for good. There may be an opportunity to purchase assets from the liquidator, at market value, if you have ambitions to continue running the business in the name of a new company.
Selling on (pre-pack)
A pre-pack administration would be the ideal procedure if you wished to buy back the business and assets and continue trading. It is used when a business model is workable but the company itself is in too much debt to continue trading. The sale is generally agreed in advance of the appointment of administrators in conjunction with agents advice on the best way to market the assets and if appropriate the sale takes place immediately upon appointment. This allows a seamless transfer of the business, usually but not always, to the same management team and owners. A phoenix company can rise in its place, preserving jobs, giving a better return to creditors and giving directors a fresh start. With our guidance, you can effectively purchase back your business and make a success of it the second time around.
Should I stop trading?
If your debts outweigh your assets and you don’t have the resources to pay suppliers, you are insolvent and we strongly advise that you contact us immediately. It is in your best interests that you cease to trade so that you don’t run the risk of committing the civil offence of wrongful trading, or more seriously, the criminal offence of fraudulent trading. Both are offences under the Insolvency Act 1986 and the Companies Act 2006. Here’s what else you need to know about them:
Directors have a duty to be aware of their company’s financial situation at all times. Therefore, they are obligated to inform shareholders if and when insolvency occurs and to seek help from an insolvency practitioner like Wilson Field. Creditors should also be notified and an attempt to make alternative payment arrangements be made. Continuing to trade will be seen as worsening your creditor’s position further and is considered wrongful trading. Associated with a judgment of this is a potential disqualification for up to 15 years, along with other penalties and financial fines.
Fraudulent trading means that a director is considered to have deliberately acted to avoid paying company liabilities. Such an allegation can lead to a prison sentence alongside director disqualification and fines. Selling off company assets prior to liquidation or taking credit knowing it cannot be repaid are fraudulent actions and have serious consequences.
If you cannot afford to pay suppliers there are financial solutions available to potentially get your business out of trouble. However, it is only worth putting more money into the company if it can genuinely continue to trade once creditor pressure has been relieved. There are formal payment plans available, but once again these should only be put into practice if the company has a viable chance of success. The alternative would be to liquidate the company. If you continue to trade, with the knowledge that you cannot pay your suppliers, it could be classed as trading whilst insolvent, or fraudulent trading.
How we can help
If you’re worried about being able to pay your supplier or are unsure about the best ways to move your company forward, it’s important to get in touch as soon as possible. Depending on your company circumstances we can help you find the best route forward and work on what will suit your business best, whether it is through finance, or closing the company. We operate nationwide and offer a free face-to-face consultation.