Company Insolvency Advice: Prevention is Better than the Cure

Levels of business distress are currently at a pre-recession low, with more and more companies rallying with a backdrop of improved economic conditions. What has improved of late, perhaps given the problems many businesses have experienced since 2008, is the speed with which businesses now recognise the first signs of problems, and act quickly to seek the expert pre-insolvency advice they need.

Recent research has shown that the advice of company insolvency professionals rescued 41 percent of insolvent business in 2013-2014 and that only includes companies that waited until they were insolvent to seek help. Benjamin Franklin’s adage that ‘an ounce of prevention is worth a pound of cure’ could not be more suited to the work of insolvency professionals. There are a number of effective ways businesses of every size can manage company cash flow problems before they become critical, and finding a reliable, trustworthy source of advice quickly is the key to saving businesses and jobs.

Rescuing businesses and preserving livelihoods

The common perception of the corporate insolvency profession is of one that forces redundancies and closes companies, but that couldn’t be further from the truth. Figures from R3, the insolvency trade body, show that last year, two out of five formal insolvencies ended in business rescue, saving a total of 6,700 businesses and 230,000 jobs. However, that’s only half the story. A further 3,700 businesses, employing approximately 310,000 people, were saved from a formal insolvency procedure, such as an administration, pre-pack administration, or company voluntary arrangement (CVA), by informal advice from the insolvency profession.

A good insolvency profession will always try to save viable businesses as its priority. It will only look to liquidate or sell off a company if it’s in the best interests of the suppliers, shareholders and employees to do so.

A key skill of the turnaround or insolvency practitioner is to identify the causes of a business’ financial problems and develop a true picture of a business’ health, and its feasibility. When providing informal pre-insolvency advice, the emphasis is on getting the business back on track as quickly and possible, and determining the best ways to protect it in the future, without the requirement of a formal insolvency process such as a company voluntary arrangement or pre-pack administration.

Pre-insolvency advice options

Companies are often reluctant to consult turnaround professionals until there is an immediate crisis, but at this stage, options can be limited and the closure of the business can be a real possibility. The warning signs of distress will typically arise a number of months before the business finds itself in a crisis situation, at which point an early call for help could result in a very different outcome.

Generally speaking, pre-insolvency advice will consider the suitability of options such as reworking existing finance options, restructuring the business to reduce costs, improving the efficiency and speed of debt collections techniques, returning a business to its core activities, or maximising a company’s assets to increase its turnover. Any of these strategies in isolation, or a combination of the above, will usually be enough to get a business back on track. Thanks to an increasing number of financing options (such as asset-based lending and invoice financing), financial restructuring may also play a decisive part in a business’s remedy. There might even be parties who are interested in buying a stake in a pre-distressed business.

The prudent approach is to tap into this expertise as soon as the alarm bells start to ring. Creditor pressure, moderate cash flow problems, director pay freezes, increasing an overdraft facility, or having to agree a time to pay schedule with HMRC to pay off arrears is often the first signs of an impending crisis.

The good news is that the UK insolvency profession is amongst the best anywhere in the world, helping to avoid formal insolvency procedures whenever possible, and offering one of the highest rates of returns to creditors (more than its equivalents in America, Germany and France) if insolvency is the only option.

For more information about how pre-insolvency advice could result in a brighter future for your business, please contact Company Debt on 08000 746 757.


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