Why should a company seek company debt options? Firstly, the business will be struggling to pay some or all of its creditors when due; or a specific creditor is taking action to recover the debt – either through county court judgement, winding up order, refusing to supply goods or services-or maybe the business knows it will be unable to pay back loans when due – and the bank is not sympathetic.
So let us examine the different options in brief – there will be more detailed explanation elsewhere on the site.
New cash injections – the types of opportunities here are to introduce invoice discounting; seeking new longer term loans; financing fixed assets that are unencumbered; new equity injection. Clearly if a business is not already using invoice discounting and primarily sells to businesses not individuals then this could prove a straightforward additional form of finance.
Re-financing fixed assets, such as plant and machinery, if they are not already encumbered should be relatively straight forward, you need to be sure that the money raised totally solves the problem as if there is still a funding gap this will not resolve the issue.
There may be some regional loans, or you could consider a new equity partner.
In the event the above solutions are not possible then there are a number of fundamental changes that should resolve the problem.
Company Voluntary Arrangement , this is a legally binding arrangement between a company and its creditors to repay them over a longer period. This is known as a CVA. The company can then continue to trade and immediately stops all creditor action and any winding up procedures. Creditors may agree to receive part of their debt over a longer period. Whilst this may not seem attractive, the creditor does get some money back and does retain a customer. Using an organisation that can advise and orchestrate this procedure will tend to improve the quality of the outcome.
Creditors Voluntary Liquidation, this is the liquidation of the company and the creditors agree to the terms of the liquidation in the expectation of getting at least some of their debts recovered. This mechanism is suited to companies that are insolvent and the directors are unable to come up with a credible solution to turn around the business.
Administration Orders enable a company to examine options of rescuing the company by protecting them from the creditors pre-administration and enabling the business to trade while restructuring options are considered with insolvency practitioners and the management.
Each situation will require tailored advice and the most appropriate route is to talk to an adviser now.