Business rescue is on the rise. Official Insolvency Service statistics for the third quarter of 2014 show a reduction in corporate insolvencies and an encouraging increase in business rescue procedures.
What does this mean for your business? Well, if your business is struggling with cash flow problems or needs some time to address its debts, there are options available. Just because your business is currently insolvent, it does not mean you have to go out of business. Here is our look at the business rescue procedures that can help to put your company’s finances back on track.
Informal Creditors’ Arrangement
If your business is struggling financially, the worst thing you can do is bury your head in the sand. The more communication you have with your creditors, the better your chances of making a full financial recovery.
If you owe a nominal amount to just one or two creditors, it might be worth attempting to negotiate with your creditors informally to agree on a repayment schedule for the outstanding debt. If this approach is successful, you may be able to agree to lower monthly payments and avoid any subsequent legal action against your company. However, in more complex situations where the debt is substantial, it’s always safer to formalise the agreement.
HMRC Time to Pay Arrangement
HMRC will in some circumstances allow overdue taxes to be repaid over a maximum period of twelve months. They will look at each case on its merits but only in exceptional cases allow repayments longer than a year. Be aware when negotiating with HMRC not to be pressured into agreeing on something you cannot deliver and seek professional insolvency advice if you are out of your depth. Your accountant may not be able to help you with the negotiations as insolvency knowledge is usually required.
You will need to provide a detailed outline of how you intend to repay the taxes owed and how you will stop this from happening again. Be aware most time to pay arrangements to fail due to ongoing taxes outside of the ‘arrangement’ not being paid. HMRC will see any non-payment of ongoing taxes as default and invariably proceed to legal action against the company including winding up and seizing assets. You can learn more from the HMRC website by clicking here.
Company Voluntary Arrangement
This formal procedure is perfectly suited to viable companies that are overwhelmed by historic debts. In simple terms, a company voluntary arrangement (CVA) is a legally binding agreement between your company and its creditors for full or part repayment of the company’s debts. The CVA can protect the company from any legal processes which could result in the winding-up of the business.
Working with a business rescue team, you can assess your cash flow and propose a realistic and affordable payment arrangement over a maximum period of five years.
A company administration is a common solution for businesses that can no longer afford to pay their bills. The aim of the administration is to rescue the insolvent company by reorganising its financial affairs in the hope of keeping it trading. If this approach is unfeasible and not in the best interests of creditors, the insolvency practitioner in charge of the administration may choose to sell off company assets for the benefit of company creditors.
The administration procedure instantly halts any legal action taken by your creditors and can help to rescue a business from the brink of liquidation.
If you reach the point where liquidation is inescapable, a pre-packaged administration can help you preserve key company assets by giving a third party the ability to purchase assets and transfer them to a new company.
Despite receiving some mixed press of late due to creditors’ perceptions that directors are buying assets at less than their market value, this process will usually provide a better return for creditors than a creditors’ voluntary liquidation. It can also help to save jobs by allowing directors to continue to trade.
Invoice Discounting or Asset Based Financing
Even for financially stricken businesses, there are methods of improving cash flow or even securing additional finance.
Invoice discounting is a method of generating instant revenue from outstanding invoices without having to wait for the invoice to be paid. Outstanding payments from clients with a reliable payment history can be effectively ‘sold’ to discounting companies for an advance on the invoice. Some will even allow you to set up an ongoing credit agreement.
Asset-based financing is a method of obtaining secured funding by using valuable business assets such as machinery, equipment, or inventory as collateral. These funds can then be used to make outstanding payments, improve cash flow or contribute towards further investments.
If your company has recently become insolvent, please get in touch at your earliest opportunity to discuss how a business recovery procedure could help to bring your business back from the brink. For more information, please call our expert turnaround practitioners in confidence on 08000 746 757.