Can I Rescue My Company from Insolvency?
If you’re a struggling business owner, one question is sure to be at the forefront of your mind – can I rescue my company from insolvency?
There are a range of recovery options available for companies that are wrestling with the prospect of closure. However, certain routes are only available for certain situations, and knowing which option is right for you can be a bit of a minefield.
In this guide, we’ll be exploring the different options available to you, when these options are appropriate, and what to do if the business can’t be saved.
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How to Tell if a Company Is Insolvent
When dealing with financial pressure, it’s important to know the company’s state in terms of solvency. When a company is technically insolvent, not only do a director’s legal duties change, but so do their options.
- Do the liabilities of your company exceed its assets?
- Are you unable to pay your company debts when they fall due?
If the answer to either of these questions is yes, your business is insolvent. If your business is insolvent, formal recovery measures can be taken. If it is solvent you should pursue preventative options instead.
Options for Solvent Companies
Companies that are not yet technically insolvent should seek to take early preventative action to try and stop the situation from becoming any worse. The earlier you act, the better.
Restructuring the Business
Financially streamlining the operation should be one of the first things any struggling business takes into consideration.
Directors should look at the business as a whole to identify underperforming areas or departments that could be cut loose. Reducing company expenditure can free up cash in a business, allowing it to be focused on growth in more profitable areas.
Corporate Refinancing
Another option to be considered is corporate refinancing – this is where a business replaces its existing debt with new debt, which has more favourable terms. You’ll want to reduce any interest rates and cut overall monthly repayment amounts.
Some corporate financing options include:
- External investments
- Director loans
- The Enterprise Finance Guarantee (EFG) Scheme
It’s important to be very careful when considering corporate refinancing. Some loans may require you to take on personal guarantees, which could leave you with large debts should the business eventually fail – if you can’t afford the debts arising from a personal guarantee, you may have to declare bankruptcy.
Asset Refinancing
If your business has a lot of assets – such as property, equipment, etc – but is struggling with poor liquidity, you could consider asset refinancing.
The process involves borrowing from lenders by putting your assets up as security. This allows you to free up cash while holding onto assets that you need for the day-to-day running of your business.
Time to Pay (TTP) Arrangement
One of the biggest problem areas for struggling businesses is HMRC. Late payment can elicit big penalties that can push already-struggling companies over the brink.
HMRC offers TTP arrangements as a way to reduce this burden. They’re based on your specific circumstances, creating a repayment plan that is affordable for you. TTP arrangements cover all outstanding amounts due to HMRC – even penalties and interest. According to HMRC, over 90% of TTP arrangements are completed successfully.
Options for Insolvent Companies
If your business is insolvent, there is still a chance for a successful financial turnaround. There are formal insolvency procedures in place that provide the opportunity for continued trade and an eventual return to solvency. These options are not viable for all insolvent businesses, so it’s best to contact an insolvency practitioner as early as possible in order to give your business the best chance possible.
Company Voluntary Arrangement (CVA)
A Company Voluntary Arrangement – or CVA – is an attractive solution for many insolvent companies. It functions as a kind of repayment plan, allowing a business to repay creditors in affordable monthly instalments.
- Freezes interest on debts
- Protects the company from creditor collection action
- Directors retain full control of the business
So long as the monthly repayments are met, directors will be able to continue to trade as normal. You’ll need to get the backing of your creditors – typically by proving the business will be viable going forward – but this is the only real hurdle. Tackling the situation early gives you the best chance of acceptance.
Administration
If your business is insolvent and you haven’t managed to secure the backing required for a CVA, administration is your next best bet. Control of the business will be handed over to an administrator, who will look to seek one of the following three outcomes:
- Rescue the business as a going concern
- Achieve a better result for creditors than a liquidation
- Realise assets to make a return to secured or preferential creditors
The administrator will look to save the business – where possible – before defaulting to one of the other options. The breathing room offered by administration (alongside the fresh perspective of the administrator) can allow the company to regroup, returning it back to solvency.
Pre-Pack Administration
Pre-pack administration functions like administration, but with a key difference: a buyer for the business is decided prior to the appointment of the administrator. This can be used to revive the business as a “phoenix company”, although certain rules must be followed.
What Happens if My Business Can’t Be Saved?
It’s important to enlist the help of an insolvency practitioner and shut down the business properly to avoid any legal or financial fallout. Waiting for the court to force your business into liquidation or continuing to trade while insolvent can see you charged with misfeasance, wrongful trading, or fraudulent trading.
These charges can see you disqualified from future directorship, hit with large fines, made personally liable for company debts, or even imprisoned.
If your business has gone past the point of recovery, you must focus on your duties as a director to your company creditors. The best way to do this is by entering into a Creditors’ Voluntary Liquidation, or CVL.
During a CVL, company assets will be sold for the benefit of the company’s creditors. Any remaining debts will be written off, allowing you to continue on to your next venture.
Speak to an Expert Today
If your business is struggling financially, you should get in touch with an insolvency practitioner as soon as possible.
Early action gives your company the best possible odds of a successful turnaround. Our team will help to guide you to the correct solution for your business, figuring out a bespoke arrangement that works for you.
Get in touch to arrange a free consultation today.
