How to rescue a company that is approaching insolvency?
If your limited company faces insolvency due to cash flow issues, inability to meet debt repayments and poor credit, take immediate action. A licensed insolvency practitioner can assess your outgoings, streamline company operations, and suggest an appropriate insolvency procedure.
Is Your Business Falling Apart? Discover 7 Effective Tips To Get Back It Together
My business is seriously indebted, and without prompt action, it’s likely to collapse. How can I turn things around and recover from this overwhelming debt?
When faced with inadequate cash flow, a declining business, and rising operating costs, it may feel like everything is crumbling. Yet, with determination, resolve, and thorough research, it is indeed possible to reverse the situation at the eleventh hour.
Follow these 7 steps, and you should be on the path to rebuilding what was once your business:
Step 1 – Evaluate and Analyze the Situation
The first step entails convening a meeting with your company’s managers, directors, or accountant to scrutinise where the business is allocating its funds, assess its level of debt, and identify the reasons for its failure.
Step 2 – Begin Researching Business Restructuring Methods
Acquire a comprehensive understanding of debt management, planning, and consolidation. Make use of available software and methodologies to craft a robust plan supported by logic and mathematics. Fortunately, by reading this page, you’re already heading in the right direction.
Step 3 – Liquidate Any Unnecessary Assets
Identify any equipment, inventory, tools, company vehicles, real estate, or other assets that are non-essential to your company’s operations.
Sell them promptly, either through auctions or on the open market, to generate the necessary funds. The proceeds from liquidating company assets partially can be utilised to pay off debts and/or invest in promising opportunities.
Step 4 – Terminate Any Unnecessary Employee or Supplier Contracts or Relationships
If you’re paying your employees or suppliers excessively each month, it’s a significant drain on resources that requires swift resolution. If the product or service provided by the supplier/employee is dispensable, consider saving the money to allocate towards debt repayments or investments.
Step 5 – Explore Financing Options
Despite poor credit, you might leverage assets to secure a loan. If your clients consistently pay on time but you need immediate funds, consider invoice discounting or factoring, which converts your sales ledger into a cash advance.
Step 6 – Inspect Formal Insolvency Procedures
If independent negotiations and previous strategies prove unsuccessful, consider taking the step of initiating a formal insolvency procedure, such as administration or a CVA.
Administration shields your company from creditor legal actions, with an insolvency practitioner acting as administrator to aid in the business’s rescue. A Company Voluntary Arrangement (CVA) is a binding contract that renegotiates repayment terms, potentially reducing monthly payments and revising or eliminating employee/supplier contracts.
Step 7 – Reconstruct the Business Using Spare Resources
Hopefully, for most, this step won’t be necessary, but if all else fails and it appears inevitable that creditors will take legal action, initiating administration and arranging a pre-packaged administration sale might be the best option to rescue the business.
In a pre-packaged administration, one or more of your company’s directors could purchase certain assets of the business in a pre-arranged sale using their personal funds. These assets could then be transferred to a newly formed company, often called a Phoenix Company.
If your company is struggling with serious debt, there may still be avenues for recovery. Contact us today or chat with a professional to discuss your situation and receive free advice from our licensed insolvency practitioners.
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I am an insolvency professional with a distinguished career specialising in commercial insolvency, adeptly navigating Creditors Voluntary Liquidation, Company Voluntary Arrangements, and Company Administrations. With a comprehensive understanding of insolvency laws and an unwavering commitment to ethical practices.