Rescue, Recovery, and Closure Options for Manufacturing Companies
International supply chain delays and component shortages have greatly affected manufacturing and production output in recent years.
Manufacturing, which operates on a worldwide scale, depends on a consistent and dependable supply chain. Without this, operational problems can escalate rapidly. UK manufacturers are experiencing significant uncertainty as they confront numerous challenges.
Rising inflation and a continuously increasing cost of living contribute to a sluggish and uncertain economy.
This uncertainty results in decreased demand across various sectors as consumers hold back on significant – yet nonessential – purchases. Meanwhile, manufacturers face operational challenges in sourcing components and raw materials.
This situation has caused numerous manufacturing businesses to experience a significant decrease in cash flow. They are also facing uncertainty regarding not only when the industry will bounce back, but also how much worse the situation might become before they can even begin implementing a recovery strategy.
Winding up your manufacturing company through effective liquidation processes
If your manufacturing business is facing operational disruptions or cash flow constraints, you might be contemplating its future.
Depending on the severity of your company’s financial issues and its long-term viability, liquidation could be considered as the most suitable course of action.
Opting to place your manufacturing company into liquidation is a significant decision, and it’s crucial to understand fully what it involves and how it impacts you, your employees, and your creditors.
If your company is insolvent, it’s essential to seek advice on liquidation, even if it’s not your preferred course of action. Once you determine your company’s insolvency, you have specific responsibilities and obligations to your company’s creditors. Failing to fulfil these obligations can result in serious consequences in the future.
A licensed insolvency practitioner can discuss your options with you, including explaining alternatives to liquidation if your business is considered viable for a rescue and recovery process. They will also provide advice to ensure you comply with your legal duties as the director of an insolvent company.
If you determine that the optimal choice for your manufacturing business is to initiate a formal liquidation procedure, this will be accomplished through a Creditors’ Voluntary Liquidation – or CVL.
As a formal insolvency process, a CVL can only be undertaken under the guidance of a licensed insolvency practitioner.
Once you appoint the insolvency practitioner, they will assume responsibility for resolving the company’s outstanding affairs, which includes handling creditors on your behalf.
All company assets will be identified, valued, and sold, and the proceeds will be distributed among outstanding creditors according to a designated hierarchy. The company will then be formally wound up, and at the end of the process, it will cease to exist as a legal entity.
Any outstanding company debt will be cancelled unless you’ve given a personal guarantee – known as a PG – for this loan. If you have, the PG will become active now, and you’ll be personally responsible for repaying the debt instead of the company.
Insolvent liquidation isn’t desirable for your company, but sometimes it’s the best choice. Workers will lose their jobs, with a chance to claim redundancy if eligible. Creditors will also be treated fairly under the Insolvency Act 1986.
How can I rescue my manufacturing company?
Although your manufacturing firm may face challenges now, it doesn’t mean it’s doomed. There are ways to rescue it, especially if it has a track record of success before the current difficulties.
If you’re considering your options, a licensed insolvency practitioner can guide you through the available solutions and advise on the best course for your company.
Reviving a struggling business demands profound insight from the insolvency practitioner into the root causes of the issues and the prospects of the company becoming profitable again.
Additionally, it requires a strong commitment and determination from the company’s directors and shareholders to effect the turnaround.
The initial step involves identifying the underlying issue and devising a plan based on it. If the problems stem from a sustained decrease in demand with little chance of recovery, turning the company around might not be feasible.
However, if financial troubles result from supply chain disruptions or late payments from debtors, restructuring possibilities can be explored.
If you’re facing difficulties in managing cash flow because of late or incomplete invoice payments, considering invoice financing could stabilise your situation. Alternatively, our specialised commercial finance team can assist you in exploring other funding avenues like commercial loans or asset finance.
For numerous manufacturing companies, challenges may extend beyond this point. If you’ve fallen behind on your obligations to HMRC, accumulated substantial debt, or can’t meet your expenses promptly, engaging in negotiations with your creditors could offer a solution.
You might negotiate to settle your HMRC debts through monthly instalments by setting up a Time to Pay (TTP) agreement. If your company consistently pays taxes punctually and in full, and you can show you’ll clear your arrears within 12 months, HMRC is often open to granting this extension to bring your account current.
If you owe money to multiple creditors, a formal and legally binding insolvency solution called a Company Voluntary Arrangement (CVA) might be more appropriate. A CVA is agreed upon by the indebted company and its creditors, usually lasting between 3-5 years.
Throughout this period, the company is required to make a fixed monthly payment to the designated insolvency practitioner, who serves as the nominee and supervisor for the CVA.
The practitioner will then distribute these funds to creditors based on a prearranged ratio agreed upon beforehand.
The monthly payment under the CVA will be lower than what was paid before, but creditors also tend to benefit from a CVA. Otherwise, the likely alternative would have been the company being compelled into liquidation, where financial returns are usually much lower.
Creditors (comprising at least 75% by value) must consent to the CVA before it can take effect. Once consent is secured, the CVA becomes legally binding on all parties involved.
If creditor pressure becomes overwhelming and you face threats of legal action, placing your manufacturing company into administration may become necessary. This procedure shields the company from litigation threats and temporarily halts ongoing legal proceedings.
The company’s administrator, who must be a licensed insolvency practitioner, will utilise this period to formulate a viable long-term strategy, which may include internal restructuring, a company sale, or even liquidation if rescue isn’t deemed feasible.