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Business Debt Advice for Limited Companies

Despite the best efforts of all involved, many companies will at some point, experience financially challenges. This does not necessarily mean the business is doomed to fail, in fact for many, this will be nothing more than a temporary dip in performance; however, for some, the problems will require a level of intervention in order to get the company back on its feet.

Seeking professional advice from a company debt expert as soon as you notice your business is struggling, could be the difference between your company being able to turn its situation around, or falling into a state of terminal decline.  

Understanding cash flow

When it comes to running a successful business, ensuring a healthy cash flow is in place in vital. Cash flow not only allows your company to pay its wages, bills, and other outgoings as and when they fall due, but it also acts as a barometer as to the financial health of your business. Once you begin to experience cash flow problems, you should take this as a sign that you could be heading towards a financially precarious position.

Again, squeezed cash flow does not necessarily mean the business is bad. The important thing is to get to the root cause of your worsening financial position and see what changes can be made to improve the situation. In some cases, there may be external factors at play which are dampening sales, perhaps your sales margins have decreased due to rising costs elsewhere, or maybe your debt repayments have escalated and you need to look at refinancing options to bring this down to a more sustainable level.

By taking swift advice from a licensed insolvency practitioner at the early signs of business distress, you can understand all of the options which are out there for you and your company, and work towards an appropriate solution. This may involve negotiations with creditors, refinancing, or a more comprehensive restructuring of the company and its operations.

Debt advice for limited company directors

Regardless of the size of your company, or the sector you are operating in, if you are struggling with business debts – whether these are in the form of loans, credit agreements, lease or rent arrears, or payments to suppliers – you need to take action to remedy the situation. Left alone, business debts only get worse as the situation escalates, the amount owed increases, and creditor patience wears thin. In the worst-case scenario, you could be forced into compulsory liquidation by a creditor should they issue a winding up petition against your company for non-payment of debts.  

Taking the first step towards resolving company debt issues and asking for advice from a professional such as a licensed insolvency practitioner, is undoubtedly tough, however this can be absolutely vital in turning around your company’s financial position. This is because there are a range of formal and informal solutions available which can help ease a business’s debt problems and put them on the road to recovery.

Options for businesses and limited companies in debt

Depending on the scale of your company’s debt, the ability to repay this money, and also the desire on behalf of shareholders and directors to continue trading, there are several options which can be considered.

Once you begin discussions with a licensed insolvency practitioner, they will be able to clarify your position, assess your business’s likely future viability, and suggest the most appropriate option for you and your company.  For some businesses this may involve informal negotiations with creditors, arranging a Time to Pay (TTP) agreement with HMRC, or easing short-term cash flow worries by accessing third-party funding. However, in some cases, a more formal route will need to be taken:

  • Company Voluntary Arrangement (CVA) - A Company Voluntary Arrangement functions as a formal payment plan which is entered into by a company in debt and its creditors. Within the terms of a CVA, creditors can include trade suppliers, HMRC, finance providers, as well as landlords. A CVA allows for a renegotiation on debt repayment terms and existing lease agreements, and as part of the process some unaffordable debt may be written off. CVAs typically run from between 3-5 years and your appointed insolvency practitioner will act as nominee and supervisor for the duration; all payments will be made by your company to the insolvency practitioner who will then distribute this money to creditors on a proportional basis.

    While this may sound like a great solution to your company’s debt problems, it must be noted that not every company will be able to enter into a CVA. This is because creditors (at least 75% by value) must agree to the implementation of the arrangement. Creditors are only likely to vote in favour of the CVA if you can demonstrate your future viability as a trading entity and your ability to adhere to the monthly repayments laid out in the CVA proposal. If creditors do consent, however, the CVA becomes legally-binding on all parties providing a reassuring element of certainty to all involved. 
  • Administration – A company can be placed into administration if creditor pressure is increasing, and time and space is needed to formulate a workable plan. Once a company enters administration it is granted a moratorium which protects the company against any ongoing or threatened legal action from creditors; this can prevent the company being forcibly wound up through the courts.

    Administration is often used to save a business (or parts of a business) rather than the company itself. Valuable assets can be sold, while unprofitable areas of the business can be wound down. For example, this may mean a business’s name may be sold to a competitor or related ‘newco’, while unperforming retail premises are closed.

    Administration is only ever a temporary solution for a company dealing with mounting business debts; sooner or later the administration must come to an end. A company can exit administration through a variety of means including a sale to a connected or unconnected third-party, a return to trade in a slimmed down or restructured form, or by entering into an alternative insolvency process such as a CVA, or if the company is not able to be rescued it may have to enter liquidation.
  • Creditors’ Voluntary Liquidation (CVL) – When a company’s debt levels are as such that it cannot be saved, the most appropriate option may be to place the business into liquidation. This can be done through a direct-initiated process known as a Creditors’ Voluntary Liquidation (CVL) which must be administered by a licensed insolvency practitioner. The company will be closed down in an efficient and orderly way, with creditors being repaid – as far as possible – through company assets.

    After liquidation, the company will no longer exist and any business debts which remain at this point will be written off unless a personal guarantee (PG) has been provided.

Expert debt help for company directors and sole traders

If your company is struggling with mounting business debt and you would like to understand your option, call the experts at UK Liquidators. You can arrange a free no-obligation consultation with a licensed insolvency practitioner who will be able to help you understand your options for either saving or closing down your indebted business.

Jonathan Munnery
Partner

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If you are considering liquidation for your company, taking expert advice at an early stage is crucial. At UK Liquidators, our team of licensed insolvency practitioners are committed to providing limited company directors with the help and advice they need to make an informed decision.

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