A company is insolvent when it can’t pay its debts or liabilities when they fall due, or its debts outweigh the assets on its balance sheet. There are ways to identify whether a company is insolvent if you’re unsure.
If your company is insolvent, what are your options?
Options for company recovery
The first question you need to ask is: “is the business viable, and does it have good prospects for the future?” If you think you can overcome the adversities currently holding your business back and wish to keep the company trading, there are options to consider.
Time to Pay and informal arrangements
If you’ve found yourself in short-term financial difficulties with HMRC, you may be able to reach an agreement if you approach them with an acceptable repayment scheme. A Time to Pay Arrangement is a type of informal agreement with HMRC, usually lasting six or twelve months, with the entire debt being repaid by the time of its conclusion. We have a wealth of experience in proposing Time to Pay Arrangements, so if you feel this option could be the lifeline you need, don’t hesitate to get in touch.
If you’re suffering financial setbacks as a result of long-term issues, and it’s unlikely you could repay the debt in full, an informal procedure may not be appropriate.
Maybe your business is sound in structure but needs to raise or restructure its borrowings. There are lots of options available, including:
- Restructure existing finance
- B2B businesses – invoice finance (particularly good if the problems were caused by rapid growth)
- Refinance plant, equipment, vehicles, etc
- Commercial mortgage / re-mortgage
There are numerous options when it comes to business finance, but the underlying problems within the business must be addressed or borrowing more money will just temporarily mask the real problems.
Company Voluntary Arrangement (CVA)
A CVA is a formal repayment arrangement which enables you to consolidate your company’s unsecured debts and spread out the monthly repayments over five years. Any debts left at the end of the CVA is written off, and the company can continue to trade throughout the arrangement. You retain control of the day-to-day operation of the company. This option lets a financially troubled company get back on its feet while also paying back something to unsecured creditors, thus avoiding winding-up petitions. We can assess your company’s financial situation and offer guidance on whether a CVA would be appropriate, completely free of charge.
What if you know that the core business you operate is sound, but perhaps historical debts are pulling it down? Many companies can find themselves in this situation if they suffer a bad debt, lose an important customer, or need to downsize but cannot afford to pay redundancy. You know the company cannot continue because it is running out of cash but feel it could survive if given a fresh start.
If your company is short of cash, but the business model is viable enough to be sold as a ‘going concern’, administration might be the best solution for your company and its creditors. Administration will protect the company from creditor action until the best way forward can be planned and actioned. It may give time to finish off contracts, realise assets and attempt to sell the business as a going concern.
You may have the opportunity to continue the business as a new entity. Doing so will usually maximise creditor returns as opposed to merely liquidating assets and dissolving the company.
Speak with one of our experienced advisors who can advise if administration is suitable for your business model.
Options for company closure
If it looks unlikely that your company will recover from its cash flow problems, it’s essential to contact us for advice with a view of ceasing to trade. It’s important you avoid worsening your creditors’ position if you want to avoid accusations of wrongful trading and incurring personal liability.
Creditors Voluntary Liquidation (CVL)
A CVL might be the best route forward if you do not feel that the business has a viable future. It involves your creditors approving the appointment of a liquidator who will realise and sell off your company assets and make a distribution to creditors. Any debt left over at the end of this process is effectively wiped off.
Restart the company
In some cases, it may be possible to purchase assets from the liquidator and continue running the business in the name of a new entity. For help evaluating the best route forward for your company, contact us without delay. This process is called pre-pack liquidation.
There are several options available if you have become aware that your company is insolvent. Which option you take depends on your own assessment of the company – can it continue trading if given the option of repaying the debt over a period of time? If so, a Time to Pay Arrangement or a CVA could rescue the company or arranging commercial finance may be the answer.
Does the company need restructuring? Administration may be the process to consider. Are you looking to put the company to bed? A liquidation could be a more appropriate solution.
How we can help
So, there are a lot of options for you to consider. We can assist you in deciding on the best route forward for you and your business. Our advisors are friendly, understanding, and available to offer you free, non-obligatory initial advice and guidance, clarity, and direction. Financial worries don’t and shouldn’t be a burden you take on alone.