Published: 29th February 2020
Updated: 8th February 2021
If your company has fallen into debt and is experiencing financial distress, it’s important to obtain professional help as soon as possible. If you cannot pay your bills as they fall due, or your company’s liabilities exceed the total value of its assets, it means you’re insolvent and you must carefully consider whether to continue trading.
Knowing where to start when your company is in debt can be difficult, however. There are actions you can take to prevent a poor financial situation worsening, and various options also exist to help you back to long-term profitability.
Free help is available from various sources including registered UK charities such as Business Debtline. Your accountant should also provide guidance on how to deal with debt. Seeking professional debt help from licensed insolvency practitioners (IPs), however, not only offers valuable sector-specific experience, it can also protect you from accusations of wrongful trading should the company need to be liquidated at a later date.
Begbies Traynor are specialists in business rescue and recovery, and provide free independent advice to companies in all industries. So what forms of debt help may be available to your company?
Depending on the seriousness of the company’s position, it may be possible to agree an informal repayment plan with one or more of your creditors. This could relieve the overall financial pressure the company is experiencing, but the success of this option typically relies on a good payment history with individual creditors.
You also need to be proactive in contacting creditors and offering some form of payment, even if it’s only a nominal amount. It’s worth remembering that creditors may be willing to grant extra time to pay if they believe your financial problems are temporary – an important point, particularly where tax debts are concerned.
HMRC offer a Time to Pay arrangement to some companies in debt. This arrangement allows tax arrears to be repaid over a longer period, generally between three and six months, and can be very helpful to regain financial control of your company.
Given the pressure HMRC exerts on companies with tax arrears, the hefty financial penalties applied for non-payment, and their power to close down businesses quickly, it’s crucial to contact them as soon as possible.
A Company Voluntary Arrangement is an official procedure that could help if your company’s debt situation worsens to the point of insolvency. It involves formal negotiations with creditors by a licensed insolvency practitioner.
If creditors agree the IP’s proposal, your company makes affordable repayments according to the agreement for a fixed period of time. Another important benefit of a CVA is that directors regain control of the company once the arrangement comes into effect.
If your company has just started to experience financial difficulty, there are certain actions you can take to limit the possibility of becoming insolvent in the future. These include:
Begbies Traynor is the UK’s largest professional services consultancy, and can offer specialist debt advice to companies in all sectors. We operate from over 70 offices around the country, and offer free same-day consultations.