Having to deal with continuous creditor pressure and late payment penalties can be very stressful, especially if you have a lot of debts and monthly obligations.
When a company’s liabilities outweigh its assets it is considered insolvent. At this point the risk of a liquidation or bankruptcy petition may arise.
The best way to save a company in this situation is to act quickly to stop the situation getting worse.
Depending on how bad it is there are a few options which can help a company pull away from insolvency as long as there is a realistic prospect of recovery.
Funding and cash advances
With invoice financing you can increase cash flow by raising a lump sum of capital immediately to be reinvested into your business. It will also support your ongoing trading.
As you raise your sales invoices and send them to your clients you also provide a copy to your invoice finance provider. They will then make a payment to you of up to 90 of the invoice value straight away. The balance, less charges, is paid when your client settles the invoice.
This is a good option if you have customers who owe you a large amount of money or are due to pay in the future (by way of contract) as you can convert them into cash quickly, this can then be used to pay debts.
There are also facilities to raise funding by way of a loan secured on company assets. This may seem like just adding to the debt, but if carefully managed it can help with cash flow and halting any pending legal action.
Company Voluntary Arrangement
A Company Voluntary Arrangement (CVA) is similar to an IVA (Individual Voluntary Arrangement), but it’s for companies rather than individuals. It is a legal process that enables a company to make a binding agreement with its creditors and lenders describing how the company’s debts and credit liabilities will be handled.
A CVA enables a company to reach an agreement with its creditors about how debt is to be repaid and may provide for partial or full repayment depending on what the company can reasonably afford to pay.
Most creditors do support CVAs if the alternative is liquidation with little or no return to creditors. However, the proposed arrangement must be reasonable and achievable.
A CVA can only be proposed by a company if it is insolvent and it will require the approval of 75% or more of the voting creditors.
If it is approved, the CVA binds all creditors irrespective of how they voted and allows the directors to retain control of their company.
Business restructuring
If the options above have been exhausted and there doesn’t seem to be any way to recover the company then Business Restructuring may be the right thing to do.
The existing company is closed by way of dissolution and the directors purchase the assets during the process. These would then be transferred to a new company.
This option is usually the last one to use as the original company is closed, but it is a lot better than having to get rid of any assets including clients and employees, that were built up during the company’s time in operation.
Next steps
Need some advice on how to rescue a struggling business? You can reach me on 0800 975 0380 or [email protected]
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