Insolvency isn’t an inevitable last stage when a business is in difficulties. By consulting business experts who specialise in this area, you can get advice that will help you to plan your way out of your difficulties, hopefully avoiding insolvency altogether.
So don’t just watch as your business runs out of money. Take stock of the choices available, and along with your business recovery adviser plan out a path to make sure everything is managed for the best outcome. You may be dealing with these problems for the first time and may be under immense stress. For them, this is day-to-day business – they have enormous experience and can offer up-to-date and relevant advice.
Look at the Structure of the Business
You may be able to alter the structure of the business to minimise damage. While a limited company gives the best protection for you personally in the case of insolvency, if you have given a personal guarantee, you may have negated that protection.
Partnerships offer varying levels of protection. A Limited Liability Partnership (LLP) can protect you to some extent against personal bankruptcy, but a normal partnership won’t – you can find yourself liable for the debts of the entire partnership. You may take some voluntary benefits form business recovery experts can offer information to help you with these issues.
Cash is always king, so make sure you know how much money you really need to keep the business afloat in the short to medium term by drafting a cash-flow forecast. You can’t afford bad payers at this stage, so be very careful about extending credit to your customers. Your cash-flow forecast will allow you to see whether a careful recovery can be managed.
Your recovery expert can advise on setting up a Company Voluntary Arrangement (CVA) with the creditors if this is appropriate. These are used when a company can be confident that it is possible to return to profit and there is enough cash to keep the company operating while the debts are restructured.
If the problem is late payments and money owed to HMRC for tax, PAYE and VAT, it’s important to act quickly. It’s possible to set up reasonable repayment schedules if HMRC is kept informed and knows early on that there is a problem.
Pre-pack administration is another route. Provided a winding-up petition has not been issued yet, the pre-pack can be used for the legal transfer or sale of the company’s assets to a new company. The great advantage of this method is that it is very quick, and if the company is labouring under very stringent contracts or heavy debts, it gives it a chance to start afresh while continuing to trade.
Different Types of Liquidation
You may have decided that there is no alternative but to liquidate the company. However, there are still choices, because there are both compulsory and voluntary types of liquidation. Most UK liquidations are Creditors’ Voluntary Liquidations, but a Members’ Voluntary Liquidation is another option, and this can be more tax-efficient, allowing the company directors to have more say in disposing of the company’s assets.
A compulsory liquidation, brought about by the creditors, is to be avoided if possible. In certain circumstances, the creditors can issue a winding-up petition and ensure that the company’s assets will be sold.
It will be clear by now that there’s a lot of room for planning the optimum outcome for you and your business. Specialist business recovery experts can make a realistic assessment of the situation and help you to put the best plan possible in place.