What options do I have if my business is failing?

If your business is failing, what help is available for company directors?

• HMRC Time to Pay Arrangement (TTP)
• Alternative Finance
• Informal and formal negotiations with creditors (Company Voluntary Arrangement)
• Company Administration and Pre-pack Administration
• Creditors’ Voluntary Liquidation (CVL)

 

How to turn around a struggling company 

If you think your business is struggling, it’s crucial to act promptly. Begin by assessing if the company is insolvent, as this prompts the need to stop trading to safeguard your creditors.

Various factors, like losing a significant customer or facing an unexpectedly hefty bill, can lead to business failure. The broader economic downturn post-Covid has posed challenges for businesses across different sectors.

What signs suggest potential business failure, and what choices exist if your business is on the decline?

 

What are the common signs of business failure?

Here are some common indicators of potential business failure:

• Unable to obtain additional lines of credit or loans
• Facing persistent pressure from creditors demanding payment
• Struggling to meet your business liabilities
• Experiencing staff departures
• The business cannot sustain your usual salary

If you’re dealing with one or more of these challenges, you might explore the following options to alleviate pressure on your business cash flow.

 

HMRC Time to Pay (TTP) arrangement

HMRC administers a Time to Pay scheme, offering eligible businesses an extension for settling their tax arrears, usually ranging from 3 to 6 months. While it’s essential to stay current with ongoing tax obligations, the advantage of repaying arrears under this scheme is the relief from HMRC reminders and penalties.

 

Alternative finance

If your bank is hesitant to provide extra business loans, exploring alternative funding sources could aid in your business’s revival. Invoice finance is an example of such alternative financing, offering flexibility and customisation, and is relatively swift compared to traditional bank loans. Depending on your business type, other suitable options might include merchant cash advances and asset-based lending.

 

Informal negotiations with creditors

A licensed insolvency practitioner (IP) can engage in informal negotiations with your creditors to temporarily decrease your monthly payments. This can alleviate cash flow pressures and facilitate the business in regaining some financial stability.

 

Formal negotiations with creditors – Company Voluntary Arrangement (CVA)

A Company Voluntary Arrangement entails the formal restructuring of your company’s debts and can be a viable choice if the business downturn is temporary. A CVA generally spans two to five years, during which you repay a portion of the debts, and the remaining amount is forgiven.

 

Company administration

When facing legal action from creditors, certain companies opt for a process known as administration, providing an eight-week reprieve from the risk of winding up. This period allows the appointed administrator to take necessary measures, potentially leading to a Company Voluntary Arrangement (CVA) or a business sale.

 

Pre-pack administration

If the company fulfils all the legal criteria for pre-pack administration, the core business is sold. A licensed insolvency practitioner must show that this approach is the optimal choice for creditors.

Read More:

• Beware of Unqualified Advice
• What is an insolvent estate?
• Directors Are More At Risk Under New Small Business Regulations
• Top tips for reducing employee costs
• Understanding the Finance Act 2020 and director liability

Creditors’ Voluntary Liquidation (CVL)

If the business is beyond saving, your sole recourse is to undergo Creditors’ Voluntary Liquidation (CVL). This leads to the closure of the business, but by entering this process, you prioritise the interests of creditors and fulfil your legal duties as a director.

Given the ongoing challenges for many businesses in the post-COVID period, if you suspect your business is failing, it’s crucial to promptly seek assistance from licensed insolvency professionals.

Vanguard Insolvency specialises in insolvency matters. We can provide a complimentary same-day consultation to swiftly determine your options, and our extensive network of offices covers the UK.