If your limited company is in financial difficulty and you’re struggling to deal with mounting debts, then who should you turn to if you need specialist advice?
There are currently many companies that were once thriving but are now having problems with cash flow and being uncertain how they should deal with the creditors. For the directors running such firms, this can feel like uncharted waters. They may need to know where they stand legally, what constitutes insolvency or if they will be able to continue trading. However, there is less support available for company directors compared to individuals.
This is largely because companies are subject to limited liability which acts as a type of safety net – a company is a separate legal entity and if the business fails, your personal assets are protected. The exception to this is if directors have been engaged in fraudulent activity, in which case they can face personal liability, or if directors give personal guarantees to secure loans.
Even so, some directors can also put their own money into their businesses, leading to higher levels of personal debt – and perhaps an impact on your family and with problems in paying bills and living costs. There can be an increasing crossover between your company and personal debt and so taking advice can be extremely helpful for both aspects.
Business debt help is available from a number of sources, depending on your situation.
This is a charity run by the Money Advice Trust. It offers a free debt advice service to small businesses in England, Wales and Scotland, via a team of debt advisers, with the aim of helping business owners take control of their debts. Debt advice is available through web chat or by calling the helpline. The website also offers fact sheets, budgeting tools, and sample letters to assist in communicating with creditors.
The helpline is 0800 197 6026 and this is open Monday to Friday from 9AM to 8PM, webchat closes at 6.30 pm.
Banks are commercial organisations and they seek to avoid risk and make profits. However, many banks do now have additional resources to support business customers in financial difficulty. If you took out a government-backed Covid-19 support loan (such as Bounce Back Loan), they will be able to advise you on Pay as You Grow.
Outside of this, there could be ways to spread other loans over a longer term or consolidate them with a lower interest rate that would reduce your outgoings. Ultimately, this could mean you end up owing more, but it could also make matters easier as you get your company back on track.
This was introduced in September 2020 as a way of helping companies who may be having problems repaying their Bounce Back Loans. Companies can request an extension of their loan term to 10 years from six years at the same fixed interest rate of 2.5%. Other measures include reducing their monthly repayments for six months by paying interest only – this is only available three times during the term of their Bounce Back Loan or taking a repayment holiday for up to six months – only available once.
A Time To Pay means that your tax debts in installments, such as for PAYE, VAT, and Corporation Tax, can be paid over an agreed period that lasts up to 12 months, The arrangement is about providing the company with some breathing space and needs to be agreed with HMRC – and while not legally binding, it should be adhered to or enforcement action is likely,
If you are less familiar with the role of an insolvency practitioner, then you should be aware that they can also specialise in company rescue. They will provide objective and expert guidance and advise on the most appropriate solution for your business, including having contacts within financing and business turnaround that could be of benefit.
This could include restructuring the firm or advising on a sale – including to existing directors, or, on the best way to liquidate if this is necessary. They can also negotiate with creditors, including HMRC, should this be required. Insolvency practitioners will invariably have many years of experience in helping companies in financial difficulty and may have insight into many different business sectors.
This is the latest offering from the government’s measures to ease pressures affecting business because of Covid-19.
If your company appears likely to recover from its current problems and is well-placed to grow once the debt situation has eased, then borrowing could be the answer. Although less generous than previous finance available, the government guarantee means more attractive rates may be on offer compared to conventional commercial loans.
In the Autumn Budget, the Chancellor announced that the Recovery Loan Scheme would be extended until 30 June 2022. From 1 January 2022, the scheme will only be available to SMEs and the maximum amount of finance available will be £2 million per business and the guarantee coverage that the government will provide to lenders will be reduced to 70%. Details of accredited lenders are on the British Business Bank site.
UK Government Information
There are many UK-wide organisations connected to lending and other types of business advice on the Finance and support for your business section of the government’s website.
There is also information on business debt and bankruptcy, covering issues such as bankruptcy, company winding-up, country court judgments, and debt recovery.
The Insolvency Service website has information on numerous topics linked to business debt such as liquidation, misconduct of trading companies, making a statutory demand or challenging one, and claiming redundancy.
Help With Late Payments
Cash flow is often the biggest issue facing businesses and late payments can be time-consuming and frustrating to deal with. If you are due large payments, delays in receiving these mean your business can then often run up debts, including with HMRC, which winds up more companies than other creditors. Having strong credit control facilities in-house is vital and there is also help to deal with late payments:
This is an independent body set up by the government. Its purpose is to tackle late payment in the private sector and it covers England, Wales, Scotland, and Northern Ireland. The SBC advises on resolving disputes and on how to deal with unpaid invoices, how to get your invoicing right, and signposting to other dispute resolution services. It will also investigate complaints from small companies (less than 50 staff) when they have not been paid by a larger company (over 50 staff).
Federation of Small BusinessesThe FSB offers a Debt Recovery Service to help members tackle late payments. If you are not a member but are considering joining the association, then this could be a reason to. The service includes fixed fees for sending a solicitors’ letter to the debtor, and discounted costs for legal action such as issuing proceedings for non-payment and taking enforcement action to recover the debt. There is also a range of tools, template demand letters, and guidance on the website.