No director wants to find out their company is insolvent. That said, it doesn’t automatically mean the company has no future. Depending on the company’s circumstances, it might be possible to save the company and, in some cases, allow it to continue trading.
So, if your company is insolvent, how do you alleviate the issue, and what options are available?
Assess the state of the company
You might have already researched business debt relief and have an idea of the route you want to take. While there’s nothing wrong with that, before deciding how you want to solve the company’s insolvency issues, you should assess the scale of the problem. The company’s level of debt has a bearing on what action you can take to alleviate it, and some options might be more realistically achievable than others.
If your company’s cash flow is slightly imbalanced, less drastic action may be required than if the debts are severe and creditors have actively taken steps to recover them.
Once you’ve determined that the company has solvency issues, you should speak to a licensed and regulated insolvency practitioner as a priority. Even if you aren’t sure what kind of help you need, seeking advice will help point you in the right direction and put you on the path towards effectively addressing the issues. Burying your head in the sand and hoping the problem will go away is the worst thing you can do.
Consider how you want to proceed
When deciding how to alleviate your company’s debts, you should consider what you want for its future. Although, circumstances may dictate whether your preferred option is feasible. For example, if your company has large amounts of debt and the business has no real future, recovery may not be a realistic option, and closure should be considered a more likely outcome.
What are your options?
Depending on both your company’s circumstances and the outcome you wish to achieve, there could be several options available.
If what’s in your company’s bank account won’t stretch to cover an upcoming expense, or your company needs extra funds to keep the cash flow balanced, you could explore several commercial finance options. These can be utilised in a variety of scenarios but are more of a preventative measure than a solution if the company is already insolvent.
If the core business would be viable if not for the debts, then the company could repay its unsecured liabilities in affordable, monthly instalments. A licensed insolvency practitioner can put the company through a process called a Company Voluntary Arrangement (CVA), which usually lasts up to five years. The arrangement allows the business to continue trading for the duration, and once it concludes, any remaining unsecured debt is written off.
More significant restructuring work may be required to make the company profitable again. In which case, the company could benefit more from an administrative process. It involves a licensed insolvency practitioner taking control of the insolvent company and acting as an Administrator. As with a CVA, administration pauses creditor pressure for the process’ duration, allowing the insolvency practitioner time to create a restructuring plan for the company.
Although, as a director, you might instinctively think saving the company should be an obvious end goal, there may be circumstances where the company is beyond saving, and closing voluntarily before the company’s creditors force it into compulsory liquidation, often the least desirable outcome, would be better. Closing voluntarily via a Creditors Voluntary Liquidation (CVL) allows directors to draw a line under the insolvent company and its debts, allowing them to either start another business in a new limited company or just walk away.
It also allows the directors to control the entry into liquidation, and choose a firm of licensed insolvency practitioners to enact the process rather than a government-appointed liquidator assigned in compulsory liquidation.
If, as director, you find your company is insolvent, you should act as soon as possible. Assess the company’s circumstances to get an idea of exactly what help you need; different insolvency relief procedures are better suited to different scenarios and what you want for the business’ future.
Once you’ve assessed the company and decided how you wish to proceed, you should speak to a licensed and regulated insolvency practitioner who will guide you through your options and advise you which one would best suit your circumstances. Recovery may be possible if the business model would be viable without the debts, meaning your company could trade on through insolvency or undergo restructuring if necessary. Sometimes, closure may be the best course of action, helping you draw a line under the company’s debts and allowing you to start afresh or walk away.