If you’re struggling with business debt, you might be feeling overwhelmed. With such a variety of mechanisms available to potentially insolvent companies, it is easy to become confused. The situation becomes even more bewildering when you’re having to fight off several different creditors, all owed different amounts, but making similar demands: pay us, and pay us now. Even the Government can apply a great deal of pressure – the taxman is easily the biggest single issuer of winding up petitions, accounting for about 60% of all involuntary liquidations. However, there are options available for directors keen to save their companies.
First of All: Alter Your Plan
Time for some tough love: if you’re staring down the barrel of insolvency, there are some problems with your business plan. Sorry, but for business debt to pile up to such an extent that liquidation is a likely outcome, then the company is not operating at optimum efficiency. Of course, this could be caused by any one of a variety of factors. It could be that your product, or its delivery, needs some revision. Maybe some contracts which have less-than-favourable terms ought to be re-negotiated. Or perhaps you simply need to trim some fat; cutting unnecessary spending and selling extraneous assets. Whatever weaknesses you perceive in the company, it can be worth obtaining the services of a professional business recovery advisor, who will be experienced and detached enough to make the right suggestions.
Pay Your Debts Off Before It’s Too Late
When you receive a statutory demand for the repayment of credit, don’t hesitate to tackle it head on. Waiting won’t make the problem go away; instead it could result in a winding up petition being filed against your company. Try to negotiate a repayment plan with the creditor. After all, their ultimate goal is to get their money back – if you can persuade them that this is possible without needing to attend court, they are likely to accept your proposal. Bear in mind that once the debt to each individual creditor falls below £750, they no longer have the right to ask for a winding up.
Buy Yourself Some Time With a Company Voluntary Arrangement (CVA)
If you’re truly bogged down by business debt, a CVA can be the best approach for the future. Under a CVA, you will normally be free to continue running the business as you see fit, with a licensed insolvency practitioner negotiating a deal with your creditors. If 75% of them agree to the plan presented by the practitioner, your company’s debts will be paid from future profits, and you will receive greater leeway when it comes to ending unfavourable employment contracts and leases. Importantly, the formation of a CVA stalls any legal proceedings related to the business debt.
Whatever You do, do Something!
Involuntary liquidation is a painful and expensive process for all involved. It will tarnish the name of the company in a very public fashion, and exposes directors’ conduct to investigations. Make sure you are able to avoid it if at all possible.
Tom Omar is an insolvency practitioner and blogger. He has over 20 years’ experience in advising entrepreneurs on company debt issues.