Updated: 22nd February 2020
If your business is experiencing financial problems and you fear that creditor action will force you into liquidation, it may be reassuring to know that there are rescue options available.
Unfortunately, many Scottish businesses face closure at the hands of their creditors, and even though there are other avenues available, liquidation is often the end-result. Company rescue is possible if the business is deemed viable in the long-term, but it is crucial to act quickly in addressing your company’s financial problems – the sooner you understand your options, the greater chance you will have of saving the business.
Options for company rescue are not widely used by insolvency experts in Scotland, but various procedures do exist that offer vital breathing space and can help you trade your way out of difficulties. One such option is a Company Voluntary Arrangement, or CVA.
A licensed insolvency practitioner will establish your eligibility by analysing the business, and provide an objective viewpoint on the company’s future viability. Other potential options for rescue include company administration, and sometimes a combination of these two methods is used if a CVA is found to be the most suitable way out of the administration period.
Begbies Traynor is the leading UK corporate rescue and recovery practice, and may be able to help turn your business around. We assist companies of all sizes and in every sector, and provide independent, unbiased advice on the best way forward.
A Company Voluntary Arrangement is a formal route into insolvency that must be administered by a licensed insolvency practitioner. You stay in control of day-to-day business, whilst benefiting from extra time to pay your creditors.
The insolvency practitioner analyses your company’s financial position to establish its eligibility for a CVA. If you meet the conditions, there are several benefits to entering this process:
Owing arrears of tax and National Insurance to HMRC can be particularly worrying, and it has been suggested that HMRC in Scotland are unsupportive of CVAs. A well thought-out instalment plan to repay all arrears over an extended term, however, is unlikely to be rejected if you have maintained good communications in the past, and are clearly taking a proactive approach.
Our advice is to always take the initiative with HMRC – it demonstrates commitment and responsibility, and could positively influence the long-term outcome for your business.
This Time to Pay arrangement offered by HMRC is commonly used by businesses experiencing temporary cash flow problems, and often provides the time needed to re-establish themselves as a profitable company.
Time to Pay generally lasts between three and six months, but it is not uncommon for businesses to negotiate 12 months’ extra time to pay. In the meantime, you should continue to maintain your regular tax and NI payments, so as not to jeopardise the new arrangement.
Another potential rescue option for businesses in Scotland is company administration. One of the main benefits is the moratorium period inherent in this route that allows companies relief from creditor pressure.
The initial aim of entering administration is the company’s rescue as a ‘going concern.’ Sometimes a CVA can be used as a way to exit administration; in other cases the sale of company assets might be enough to satisfy creditor demands. A combination of the two is also possible.
It is also worth mentioning that a fast sale is advisable in many circumstances. In this respect, a pre pack administration might be suitable, whereby you purchase some of the company’s assets using your own personal funds.
It is then possible to set up a ‘new co’ using these assets, and continue trading having saved jobs and minimised commercial damage. An IP must clearly show that pre pack administration would bring the best results for creditors, however, as the process has received some criticism in the past for its perceived lack of transparency.
Begbies Traynor can negotiate on your behalf with HMRC and other creditors. We are available for appointment as administrator, and can provide the advice needed to give you the best chance of rescue.