If your business is in a difficult financial situation, there are a few options to choose from, each with advantages and disadvantages. This section aims to describe and outline each of the main available options, together with their pros and cons to help you decide what the best way forward is for you and your business, such as:
Before considering pursuing the more ‘final’ options available such as winding up your business, all possible options to rescue your business should be considered.
While you may have some cost- cutting ideas in mind and other logistical corners you can cut to raise capital, consulting a professional business turnaround expert is a good place to start.
Business turnaround is the process where a turnaround practitioner (who can also be an insolvency practitioner) works with business owners to audit all business operations and see where things can be improved. This is so that areas of the business which are not running at full efficiency can be found and fixed, contributing to the recovery of a company.
Initially, the practitioner will spend time to get to know the company, its objectives and how it goes about reaching them. They will speak to employees, meet with directors and get an idea of the day to day running of the business. They will then arrange a meeting with creditors to show them that steps are being taken to improve the business and begin their investigation into where the problems lie within the business. All issues are identified, prioritised and analysed to ascertain the best way to move forward to begin the actual business turnaround process.
Speak to a turnaround practitioner at The UK Company Insolvency Helpline today.
An advisor who specialises in helping ailing companies solve their problems and get back on their feet,
a simple analogy of this would be to describe a turnaround practitioner as a company doctor.
Voluntary liquidation – CVL – A common method of dealing with company debt
Voluntary liquidation is the dissolving of all of a business’s assets to pay employees to satisfy redundancy laws, creditors and shareholders.It is usually a last resort, and is the last option that a business may have as a result of no interest from buyers or takeovers. There are likely to be expenses involved, which do not make the best returns for business owners or creditors.
Advantages of Voluntary Liquidation
Disadvantages of Voluntary Liquidation
Types of Liquidation
Creditors Voluntary Liquidation
When a company cannot pay its debts, they may go into a CVL and the shareholders and directors decide to place the company into liquidation because it is insolvent. This involves the appointment of an Insolvency Practitioner acting as a liquidator, whose duty is to ascertain and collect the assets of the company and distribute them amongst creditors. This process is used when a company is insolvent and cannot pay its debts, and the business is no longer viable and directors are not prepared to continue running and trading the company. investigation work that is required.
Otherwise known as compulsory winding up, compulsory liquidation is carried out under the order of the court, usually as a result of petitions by creditors or shareholders who have given up trying to recover money from the insolvent business.
The insolvent business is referred to the official receiver by the court who becomes the liquidator. If the company assets are enough to cover the administrative costs, the official receiver will arrange a meeting with the creditors to appoint a different liquidator if required. The official receiver is responsible for investigating the directors and any other investigation work that is required. The Official Receiver is amcivil servant in The Insolvency Service and an officer of the court. He or she will be notified by the court of the bankruptcy or winding-up order. They will then be responsible through his staff for administering the initial stage. This stage includes collecting and protecting any assets and investigating the causes of the bankruptcy or winding up.
Members Voluntary Liquidation
This is the process where all the company shareholders decide to liquidate a company, providing that there are sufficient assets to settle debts before doing so.
After the decision has been finalised, it is recommended to seek to advice from a licensed Insolvency Practitioner. This is to ensure that standard practice is carried out and all documents are correctly filled in and processed. If the liquidator decides that the company will not be able to pay off all debts in full within the agreed period, a meeting with the creditors is called and the process can be converted into a Creditors Voluntary Liquidation (CVL).
Company Voluntary Arrangement ( CVA)
A CVA is a deal between creditors and the insolvent company, that places a legal framework around the company to stop creditors attacking it.
This is known as a moratorium. It paves the way for a struggling business to repay all or part of its debts out of future profits, over a time which has been previously agreed. Part of UK law since 1985, it is one of the government’s preferred rescue solutions. The CVA requires 75% of creditors to approve the process, and if it is approved the remaining creditors are obligated to be a part of the agreement.
Company Voluntary Arrangement ( CVA) – The CVA Process
Advantages of a CVA
Disadvantages of a CVA
Pre-pack administration – A popular method of dealing with company debt
Pre-pack administration (or a pre-packaged sale) is the name given to the process where insolvent businesses assets are sold off to new owners whilst the business is still trading.
The process is handled by an insolvency practitioner and the purchaser could be a competitor, someone new
to the company or even the existing management.
Advantages of Pre-Pack Administration
Disadvantages of Pre-Pack Administration
A Fresh Start – A common option for limited companies with debts
A fresh start is when a company finds it desirable to completely end things, and start again fresh due to their business being insolvent and past the point of recovery.
Together with a business rescue company, the process can be relatively simple and can be completed in a matter of weeks. With the help of a business debt company, the process will usually include:
In order to restrict abuse of the fresh start method, there is a restriction on the re-use of the same or similar business name until five years after liquidation. The only way to re-use an existing or old company name is to pay money for the privilege.
If you are setting up a new company after a pre-pack or fresh start, consider invoice factoring to support the cash flow of the new business. Seek advice: The gold standard of any financial difficulties, make sure that you are aware of all of your options. If going into liquidation, ensure that you are getting the right price for your assets. Get a third party involved to evaluate them