What options are available if my business is failing?

Updated: 3rd March 2021

If your business is failing and you are unsure how to proceed, one of the first aspects to consider is whether the company is actually insolvent, or is approaching insolvency. This is a crucial point, as trading whilst insolvent leaves you open to allegations of wrongful trading should the company later be liquidated.

Seeking professional assistance will help you understand all the options, and how each one could impact on your business. A licensed insolvency practitioner (IP) can assist in a number of ways, not least of which is negotiating with creditors on your behalf.

If the company has become delinquent on tax, or a creditor is threatening to petition for winding up, the situation is urgent, and requires immediate action to prevent compulsory liquidation and closure of your business.

Begbies Traynor can offer professional advice if your company is experiencing financial distress, guiding you towards the most appropriate solution.

Negotiate a Time to Pay arrangement (TTP) with HMRC

If the company has a good track record when it comes to paying tax and National Insurance, and the current financial problems are believed to be temporary, HMRC may agree a Time to Pay (TTP) arrangement.

This offers the company an extra period of time, usually around six months, in which to pay its arrears. HMRC will need a detailed plan of how you intend to meet the new obligation, including cash flow forecasts for the months ahead.

It is important to keep up with your ongoing liabilities with regard to HMRC or you risk the TTP being cancelled.

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Alternative finance

  • Asset-based finance
    If your business owns valuable assets such as plant, machinery, or vehicles, you may be able to put their value to use with asset-based finance. Assets are sold and leased back to the company, so you retain full use of them whilst benefiting from a lump sum cash injection to help your cash flow.
  • Invoice finance
    Invoice finance is another form of alternative lending that might be suitable if your company issues large numbers of sales invoices. A factoring company advances between 80% and 90% of each invoice’s value, so you receive a constant flow of cash throughout the month to help you meet ongoing liabilities and minimise the risk of financial distress due to customers paying late.

Formal insolvency processes

If your company's financial problems are at such a stage where the business is already insolvent, it is imperative that you cease trading and seek guidance from a licensed insolvency practitioner at the earliest available opportunity. They will assess your business affairs, let you know your best options for rescue, or advise on the suitability of a voluntary liquidation process should this be necessary.

Company Voluntary Arrangement (CVA)

A CVA is a legally-binding payment plan negotiated between a struggling but viable company, and its creditors. When creditors agree the terms of a CVA, no further legal action can be taken against the company as long as they continue to make the required monthly repayments as dictated in the agreement. You retain control of the company, and are given the opportunity to trade your way out of difficulty using the additional working capital released from reduced monthly debt repayment.

Company administration

When a company enters administration, it receives valuable protection from further creditor action via an eight-week moratorium period. During this time the appointed administrator will formulate a plan for rescuing the company as a going concern.

Pre pack administration

There are strict eligibility criteria surrounding pre-pack administrations, as they involve the quick sale of underlying business assets, sometimes to the existing directors. The process must be justified by a licensed insolvency practitioner as providing the best financial outcome for creditors.

Creditors’ Voluntary Liquidation (CVL)

A CVL is often the most appropriate solution when a company's financial and trading problems have taken it beyond the point of a turnaround being possible. The appointed IP will realise business assets, and close down the company once the distribution to creditors has taken place.

Begbies Traynor is the UK’s market leader in business rescue and recovery, and can offer further advice if your business is failing. Call one of our experts to arrange a free consultation at one of 70+ offices around the country.

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