can't-pay-my-limited-company's-creditors-and-debts

What support is available if my company can’t pay creditors?

If you’re unable to meet payment obligations, it’s advisable to promptly consult with a licensed insolvency practitioner. They can guide you through available choices. Ignoring creditors won’t resolve the issue; instead, it may increase the pressure on you and your company.

 

When your company can’t afford to pay its creditors what are your options?

If you find yourself facing mounting pressure from creditors, and your company struggles to meet its bills, debt repayments, and other obligations on time, it may be insolvent. The pressure from creditors and delays in payments are clear indicators of financial distress in your business. Although the situation may seem challenging, rest assured there are various options for companies in such circumstances.

If you suspect your company is insolvent, it’s crucial to promptly consult a licensed insolvency practitioner. Once aware of insolvency, you have specific legal responsibilities, including safeguarding the interests of your creditors.

Continuing business operations while aware of insolvency, where the company can’t settle its bills and owes more than the total value of its assets, may lead to allegations of wrongful trading. This could result in personal liability for some of the company’s debts down the line.

 

How can an insolvency practitioner help with creditor pressure?

After engaging the services of a licensed insolvency practitioner, whether for liquidating the business or attempting a rescue through an administration process, you’ll notice an immediate relief from creditor pressure.

The insolvency practitioner will communicate with creditors, explaining the company’s situation and the prospects of recovering the money owed. Directors often experience considerable stress from mounting creditor pressure as their company’s situation worsens, and the relief from this burden is a significant relief for many.

 

What options are available if you cannot pay your company’s creditors and debts?

Considering your company’s financial status, future sustainability, and the directors’ willingness to continue trading, several options are at your disposal:

I. Attempt a CVA – If you wish to rescue the business and keep it operating, consider having an insolvency practitioner propose a Company Voluntary Arrangement (CVA) on your behalf. If accepted, this arrangement enables you to renegotiate repayment terms with creditors, providing your company with the necessary time for recovery. Once approved, a CVA holds legal weight for all parties involved, offering greater security than an informal creditor arrangement.

 II. Enter Into Administration – If creditors are urging you to take action and are threatening to force your business into closure, you might consider placing the company into administration. During administration, a moratorium is granted, creating a legal barrier around the company. This shields your company from any legal actions by creditors, providing immediate relief from the mounting pressure.

III. Pre-pack Administration – Pre-pack administration entails selling the company and/or its assets in a pre-arranged sale before the administrator is officially appointed. This sale may involve a connected or unconnected third party. An insolvency practitioner must assess whether a pre-pack is a suitable option and whether it is likely to provide the best overall value for creditors.

IV. Seek Financing – Depending on your company’s situation, refinancing existing loans may suffice to restore the company to a solid financial position. Refinancing on more favourable terms not only reduces immediate borrowing costs but also results in significant savings over the finance agreement’s lifespan. However, seeking additional finance when a company is already heavily indebted is a highly risky strategy and should not be pursued without the approval of a licensed insolvency practitioner. If the company is already insolvent, obtaining further finance could breach your duties as a director. In such cases, seeking professional insolvency advice promptly is essential once the company’s insolvency is confirmed. 

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What if financial pressure becomes too much?

If the company’s financial pressures have pushed it beyond the possibility of rescue, it might be that liquidation is the sole viable solution.

There are two types of liquidation:

I. Creditors’ Voluntary Liquidation – A Creditors’ Voluntary Liquidation is a process initiated by the director, leading to the conclusion of a company, clearance of outstanding debts, and alleviation of creditor pressure. Once the insolvency practitioner is appointed, they take charge of managing creditors and maximising their payments by selling company assets. After this process, the company undergoes dissolution at Companies House.  

 II. Compulsory Liquidation – If the pressure from creditors becomes overwhelming, they might lose patience and seek a court order to forcibly wind up your company. This is termed as compulsory liquidation. It is an expensive recourse for creditors, usually considered as a last resort. However, if a company persists in ignoring the mounting creditor pressure, creditors may resort to this step to address the situation.

When it becomes challenging to meet financial obligations, running a business can be highly stressful. As licensed insolvency practitioners, we are authorised to offer you the appropriate advice and expert guidance required during such situations.

If you are grappling with mounting creditor pressure, struggling to settle your company’s debts, and feeling unsure about the next steps, get in touch with our team today for immediate assistance and advice.

Senior Partner at Vanguard Insolvency Practitioners | Website | + posts

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.