If your company finds itself struggling to cover its debts, there are a number of formal payment plans to help repay its liabilities. These arrangements work to allow you to continue trading, avoiding liquidation and providing creditors with a higher return than from the winding-up of the company.
When would I need a repayment plan?
Although many businesses encounter some form of debt in their operational lives, you may need to consider a repayment plan when the level of debt becomes so high that the company can’t pay them for lack of available funds.
Other reasons your company could benefit from a repayment plan:
- Your company would have the potential for profit if it wasn’t burdened by its debts.
- There’s no feasible way of paying off the debts through continued trade, or you risk trading whilst insolvent.
- You want to remain in control of the company while repaying its debts.
- You need to protect the company from creditor action, which may include bailiffs.
- You need a cost-effective solution to repay the debt.
What are my options?
If you’ve already tried an informal arrangement such as a Debt Management Plan, which has been unsuccessful, your best course of action could be a formal insolvency arrangement. Depending on what you want for the company’s future; you could close the doors and have the debts die with it or try to save it via a payment plan.
Company Voluntary Arrangement (CVA)
One of the most commonly used insolvency options for companies seeking a debt repayment method, a Company Voluntary Arrangement (CVA) allows a company to repay its debt in monthly instalments, at an affordable rate tailored to its circumstances. The monthly payment plan is often set for a period of up to five years; however, this may vary depending on the specifics of your arrangement, making CVAs one of the more flexible options available.
Individual Voluntary Arrangement (IVA)
If you’re a sole trader and don’t operate through a limited company, an Individual Voluntary Arrangement (IVA) is a potential solution. These formal repayment plans are like CVAs and allow you to repay your debts in monthly instalments at a rate to suit you. IVAs can also be used for personal debts as an alternative to bankruptcy.
Both these voluntary arrangements are formal and legally-binding, and if you default on the repayments, they will fail, and you could suffer further creditor action.
There are alternative arrangements available, should you require something more informal.
Time to Pay Arrangement to HMRC
If most of your debt is to HM Revenue and Customs (HMRC), then you could explore a Time to Pay Arrangement. These informal payment plans allow you to pay back outstanding amounts of corporation tax, PAYE, National Insurance and VAT to the tax office, typically over 12 months. HMRC needs to agree to the proposal before it can be actioned and may reject it if they doubt your ability to keep to the arrangement’s terms.
Occasionally, the company’s debt could be of such a severe level that a repayment plan won’t be enough, and more drastic action is required.
In these scenarios, you could consider administration; in which a licensed IP takes control of the company, assesses its financial situation and performs the necessary action to keep it operating, with the intent of guiding it out of the insolvent period and back into profitability.
Payment plans can be a lifeline for businesses suffering from a large amount of debt, that would otherwise close the company if left unchecked. Formal arrangements such as a Company Voluntary Arrangement (CVA) allow you to pay in monthly instalments tailored to what you can afford. A similar payment plan is available for sole traders; an Individual Voluntary Arrangement (IVA), as well as alternative plans which may be more suitable for your company depending on its circumstances.
How we can help
If your company is struggling to cover its liabilities, and creditors are pressuring you to repay what you don’t have, you should never bury your head in the sand. A repayment plan, such as a CVA might be the best option for you to free your company from its debt. For more information and to see whether a CVA would be appropriate for your circumstances, speak to us today. We have a team of advisors and licensed insolvency practitioners who can offer free, impartial advice with no obligation. They can assess your situation and advise whether a formal payment plan would be the best course of action, or whether an alternative arrangement would be more beneficial.
Book a free telephone consultation with one of our initial advisers