How to Save My Company from Closing

Do you need to save your company from closing? If your company has been struggling it may feel like closing it and walking away is the only option you have. However, don’t panic – there are others!

If your company is insolvent and can’t pay debts when they fall due, informal negotiations should be your first port of call, but if these are not accepted there are still other methods available to you.

If you are coming to the end of your tether, there are ways to negotiate with HMRC and other parties that are chasing your company for money. These can all be achieved while continuing to trade…

TTP (Time to Pay) arrangements

As above, the first step to saving your company from closure should be to enter informal negotiations with creditors.

In our experience, HMRC are the first and largest creditor that directors mention when they are looking for advice. This is because the bills are large, and especially in the first few years of incorporation it can seem impossible not to use HMRC funds towards paying off smaller amounts in order to keep the company afloat.

Another reason is of course that they are relatively quick to jump to legal action if they are ignored.

HMRC are the most likely of creditors to serve a Winding up Petition; once this has happened, it is very difficult to come back from.

Learn more about winding up petitions here.

Contacting HMRC should be your first port of call – they would much rather speak to you regarding the account than waste their money instructing bailiffs or the Official Receiver. They may be able to help with a Time To Pay arrangement.

Other suppliers will also be open to accepting payment plans for the same reasons; if the alternative option is that your company closes, it makes sense for them to be reasonable.

Company Voluntary Arrangement (CVA)

In some situations, it’s too late to make informal arrangements with creditors. In these instances, entering a CVA, or Company Voluntary Arrangement may be your only option to save a company from closure.

Learn more about our CVA service.

Where creditors are no longer agreeable and they are not willing to accept any requests, a CVA solves this problem by ring-fencing the company from legal proceedings. This is because an Insolvency Practitioner will be instructed to assess the company debts.

All debts will then be consolidated into one monthly amount, which will be paid off over the course of 1-5 years. This ensures a balanced approach and is a legally binding agreement for all parties.

Of course, the fact that you will not need to lead the negotiations yourself will lift some weight from your shoulders. The authority of an insolvency professional will also help in the negotiations by instilling confidence that the agreement will be upheld.

Again, where the alternative is that your company is liquidated, creditors will often benefit more from a CVA. As long as 75% or more of the creditors (in value of debt) agree to the insolvency practitioner’s CVA proposal, then it can go ahead.

Monthly expenditure will be reduced where a CVA is entered, and the cash that is freed up by this can be used to get the company out of the tight spot that it has found itself in.

Company administration

Despite the fact that many directors are not comfortable with the release of control to an Insolvency Practitioner who has been appointed as administrator, the process is another effective solution in order to save a company from closure.

Again, all legal action will be frozen once the order has been approved.

In cases where the company have a high asset value and existing stable contracts, administration may be a more appropriate option than a Company Voluntary Arrangement.

The aim of a period of administration is to allow the company breathing space without creditor pressure to restructure assets and re-negotiate leases and contracts.

Usually, the administration period ends after 12 months, and all control will be handed back to the company director, without the threat of your company being closed by HMRC or another creditor.

Company restart (pre-pack administration)

Another possibility is to restart the company and continue under a new entity. This will not technically save a company from closure, but the transition can be so seamless that often the customers of the business are unaware of the change of company.

This process is sometimes frowned upon as it may seem unethical and detrimental to creditors, which of course it would be if used in the wrong way.

However, where the choice is between ending customer contracts early, leaving some debts unpaid or essentially doing both by ending the business completely, these need to be weighed up to make the best out of a bad situation.

Furthermore, the appointment of an Insolvency Practitioner (IP) is positive for creditors because they are required by law to mitigate any loss. They are governed by strict regulations, particularly regarding the sale of assets to connected parties.

The assets will be valued independently by the IP and sold to a new company at a fair market price, so that they can continue the business seamlessly.

It’s worth noting here that if creditor pressure is becoming unmanageable and this option sounds interesting, you must act quickly. If a winding up petition is issued by a creditor, the sale and transfer of assets is prohibited, meaning that the company will go into liquidation.

Next steps

If you need to save a company from closure, our best advice is to act quickly. The process recommended for you will depend on your particular circumstances; we pride ourselves on using our experience to tailor our advice to your personal situation.

Get in touch now on 0800 975 0380 to have a confidential chat with one of our experienced advisers.