The coronavirus pandemic has changed the world we live in forever, especially the way that we work. Many people have been furloughed from their jobs, or worse they have been made redundant, and those that still have jobs find themselves working from home, rather than commuting to an office. The virus, however, has not only affected people personally it has also lead to many businesses failing or finding themselves on the brink of collapse. This can be a very upsetting time if you are a business owner because not only do you face the prospect of all your hard going up in smoke, but you also have the worry lingering at the back of your mind that you will be letting down your employees who will lose their jobs.
It needn’t be all bad, though, because if your business is facing insolvency there are still options available to you and it is possible to turn things around despite how things may seem, and there are also various ways of taking your business through the insolvency process which will protect your employees. If you find that your business is in this position, then read on, as we are going to take a look at exactly what you should do if your business faces insolvency.
Contact Your Creditors
Your first port of call when facing insolvency should be your creditors because they are the people that you owe money to, and therefore they can potentially help you out. The majority of creditors will want to help you out because they will not want to face the prospect of not receiving payment from you, which would likely be the case if you went insolvent. Try and re-negotiate payment terms so that you can spread payment over a period of time and always act in an open and honest fashion. If they see that you are really struggling but at the same time you are trying to come up with ways to turn your business around, then they will be much more amenable to changing your payment terms. Obviously, given the current situation, they too could be in a bad position themselves and may not be able to extend credit further, but there is no harm in trying.
Seek Professional Advice
When you are on the brink of insolvency there is no point going it alone as this will get you nowhere. You need to speak to as many people as possible, as every different insight is valuable, and your first stop should be a professional insolvency advisor. Experts from https://antonybatty.com/company-administration/pre-pack-administration/ recommend that an advisor takes a look at your financial position and if it is beyond saving they can help you to enter a pre-pack administration which can keep the majority of your employees in jobs and can keep the company trading. A pre-pack administration will protect the business and the assets and is suitable when you find your business in the situation of having liabilities exceeding assets or are having cash flow problems that mean that you can’t pay your creditors. Despite this, you will face selling some of your business assets or even part of your business to your creditors, but at least your firm will stay trading and your employees will remain in jobs.
Administration
A further option open to your company when it is facing insolvency is what is known as administration. When you start receiving serious threats from your creditors then you are likely to be facing this situation as renegotiating payment terms is off the table, as is entering a pre-pack administration. When you enter full-on administration a licensed insolvency practitioner will take over the day to day running of your business and will look to save the business and will try to stop further deterioration of the company’s financial position.
Effectively you are buying time to try and solve the problems and are putting your faith in experts who have more knowledge about turning around failing businesses than you have. The practitioners may be able to source new finance or will attempt to sell off loss-making parts of the business. If they manage to turn the company profitable again, it will be returned to the directors and you will be left with your business as before, aside from a hefty fee from the insolvency team.
A CVL
A company voluntary liquidation, or CVL, is your last resort. When you and the directors of the firm realize that there is no prospect of you covering your liabilities, then this is the best option. The remaining assets of the firm will be called in and distributed to the creditors in an even manner, and then the firm is closed for good. It will be a sad day, but at least it will prevent you from losing more money.
Don’t Use Your own money
You may have spent years building your business and you may regard it as your baby, however, you should not be tempted under any circumstances to put your hand in your own pocket to bail out the firm, no matter how tempting. The fact that your business is on the brink of insolvency should tell you that all is not right, so there is no point in throwing your hard-earned cash after something that is failing. Much better is to talk to creditors and to advisors about the best steps forward. As long as you own a Limited company you are under absolutely no legal obligation to prop the firm up with your own funds, so don’t do it, or you risk facing personal financial ruin. It will be tough but you have to separate your emotions from the cold hard facts.
As we have learned there are several options open to you if your business faxes insolvency. Your first step should be to talk to your creditors and see if you can extend payment terms, and then you should seek the advice of a professional who may suggest a pre-pack administration, a full-blown administration or even a CVL if your business is beyond help. Remember, however, that you are not personally liable for your businesses’ debts, so don’t be tempted to put your own money in to rescue it, as it will only end in tears.
Disclaimer: This article contains sponsored marketing content. It is intended for promotional purposes and should not be considered as an endorsement or recommendation by our website. Readers are encouraged to conduct their own research and exercise their own judgment before making any decisions based on the information provided in this article.
