Your company is suffering from cash-flow issues. You’ve tried to raise money in the form of bank loans, financing, even tried to attract investment or inject cash into the business yourself. However, depending on your circumstances, your business may not have been eligible for any of those options, you may have tried everything and are still finding your business is in difficulty, struggling to meet its day-to-day liabilities, and in its present format is not viable. This inevitably leaves you wondering – what can I do to write off company debts and start again?
Consider your options to write off company debt
Depending on your vision for the future, there are options to consider, including a voluntary arrangement, voluntary liquidation, or pre-pack administration.
If your company has a valid business model which could profit without its debts, it may be possible to keep the company open while it pays its liabilities. There are several procedures which allow you to write off your company debts without having to close the doors.
Trading through with a Company Voluntary Arrangement (CVA)
Before you conclude that closing your company and starting again is the best route, you may consider trading through and repaying the company debts in one affordable monthly sum via a CVA. These generally last for about five years but can conclude before-hand if the debts are fully repaid, giving a return to creditors and allows you to stabilise back to profit. Providing the company adheres to the terms of the CVA, any debt remaining at the end of the term will be written off. You retain total control of running the business without the interference of outside parties.
Sometimes, a company can have so much debt, that you’d see more benefits in closing it down and starting again than continuing to trade. There are several procedures available, and your business’ circumstances will dictate which one is best suited for you.
Creditors Voluntary Liquidation (CVL)
Liquidating your company via a straight-forward CVL is the best route for those who want to walk away and start a business in something completely different, or find employment elsewhere entirely. Any assets your company owns will be realised and used to repay creditors. The company would then cease to exist, along with its debts.
Transfer assets to a new company
Transferring assets to a new company is done through a process called ‘pre-pack administration’. The assets of your company are sold at market value, usually by an administrator, either back to you and the existing management team or to an unrelated party, and a ‘newco’ carries on the business, while the ‘oldco’ ceases to exist, its old debt dying with it. In some cases, this can be achieved without the company going through the administration process, often informally referred to as “pre-pack liquidation.”
It is important to bear in mind here that there are distinctions between a business and a company. A business is the activity undertaken by a company – services and products which bring in revenue. A company is a legal entity/vehicle through which the business is operated.
After a liquidation, there is no reason why a business cannot go on if its model is viable, but it must trade under a new name and cannot be similar to its predecessor. Only in unique circumstances can a company reuse the same name as the oldco.
Are your personal finances affected?
Having a limited company means that it is a separate legal entity to you personally, protecting you from personally incurring financial burdens as a result of your company ‘going bust.’ However, it is common for business debt to affect directors’ personal finances one way or another. This could be because you have injected money into the company from your personal accounts with the intentions of keeping the company ticking over. Or more simply, your primary source of income has been your failing business, which has left you short of money and unable to pay your own personal liabilities. It is also possible that you may have signed a guarantee to help the company – for example, a guarantee to a bank in support of company borrowing, or perhaps a guarantee to a landlord in connection with a company lease.
Individual Voluntary Arrangement (IVA)
If you are struggling with your personal finances as a result of business debt, you may also need to consider an IVA – an Individual Voluntary Arrangement – which, like the CVA, compounds your unsecured debts into one monthly payment, paid in instalments over five years. It takes away creditor pressure and opens up a pathway out of debt without declaring bankruptcy.
Writing off company debts and starting again is achievable through several procedures as outlined above. Each situation is unique, and so it is essential to take advice before you reach a decision. It may be possible to write off your company debt and allow trade to continue, but it could be more appropriate to close the company down and start afresh in a new company unburdened by the debts of the old company. Unless you’re a sole trader, your personal finances shouldn’t be affected by the company’s debts. But for those circumstances where they are, you can apply for similar arrangements tailored for individuals.
How we can help
We can assess your situation and advise you on the best route forward, free of charge. If you are wanting to close a company and walk away, or move assets from a current company into a new limited entity, contact us without delay. The sooner you act, the better it is to prevent your insolvency from escalating, diminishing the chances of you being held personally liable for your company debts through wrongful trading. Our advisors are friendly, impartial and experienced and can talk you through the available options to potentially help you write off company debts and start again.
It is important to be aware that if you continue trading while the company is insolvent, the creditors could be put in a worse situation; and you can be held personally liable for not taking action. This type of mismanagement is known as “wrongful trading”. If you’re concerned about wrongful trading, it’s implications, or if you’re unsure whether you’ve unknowingly committed it yourself, you should speak to us as soon as possible.