A company is insolvent when it can’t pay its debts. This could mean that:
- It can’t pay bills when they become due
- It has more liabilities than assets on its balance sheet.
If your business is struggling financially, it could be at risk of liquidation through one or more creditors taking legal action to recover monies that they are owed. You could face pressure from your bank to reduce or repay your overdraft. Always seek advice at the earliest opportunity.
We always look at liquidation as a last resort. We will always try to rescue the company.
What can be done?
One option is to enter Administration, which will protect an insolvent company and provide time to explore all the recovery options to see if the company could be turned around.
What are the recovery options?
- Restructure the businesses finances
- Try to raise fresh capital
- Cut overheads and reduce operating costs
- Devise an informal agreement with creditors to repay debts
- Seek a Company Voluntary Arrangement (CVA) on debt repayments
- Sell all or part of the business.
Informal agreement with creditors
We could consider making an informal agreement with your creditors to pay your outstanding debts. This is more likely to be agreed by your creditors if you can show that your business is experiencing temporary financial difficulties. An informal agreement is not legally binding and a creditor can withdraw the agreement at any time.
Company Voluntary Arrangement (CVA)
A CVA is a legally binding agreement between a company and its creditors for payment of all or part of the company’s debts over an agreed period. The company can continue trading during the CVA.
Your company would be handed over to an insolvency practitioner, referred to as the administrator, whose role is to draw up a viable plan of action. This could include selling the business, coming to an arrangement with the creditors via a CVA (see above), selling assets to pay a preferential or secured creditor – for example, a building to repay a commercial mortgage – or looking at ways for the business to continue to trade.
It may mean that your company doesn’t have to pay all its debts. It is up to the creditors to decide whether to accept the administrator’s proposals.
If the company cannot be saved, the only course of action would be liquidation.
The sooner you take professional advice, the sooner your problems can be solved. We offer a free, no-obligation consultancy session – to claim yours call 01293 447799.