Company rescue options for your limited company
Just because a company is experiencing financial difficulties, does not mean the business is beyond rescue. There are a range of business recovery and turnaround solutions which can be implemented to steady a company during times of financial worry, while ensuring it has the solid foundations needed to recover and return to profitability.
Every company is unique, each with its own pressure points and sector-specific challenges. Due to this, any process of business turnaround must be approached in a similarly tailored manner. At Begbies Traynor, we pride ourselves on adopting an individual approach to business rescue and recovery, ensuring a robust yet flexible plan is put in place which is suitable for the business in question.
For some companies, this may require nothing more than informal negotiations with creditors in order to agree a more affordable repayment plan. However, if debts have reached an unmanageable level, creditors are numerous, or the company is beginning to experience threats of litigation or are already involved in court proceedings, a more formal restructuring arrangement is likely to be required.
- Company Voluntary Arrangement (CVA) – If company debts have reached an unmanageable level, yet you still believe the business is viable and has a realistic chance of a successful future, a Company Voluntary Arrangement may be able to help.
A CVA works on the principle of using future borrowings to repay existing debts by negotiating a legally-binding repayment plan with outstanding creditors. Depending on the level of debt involved and the company’s ability to repay, some debt may be written off as part of the process with the remainder paid back through a series of affordable and sustainable monthly repayments. CVAs typically last for around 3-5 years and must be overseen throughout their duration by a licensed insolvency practitioner.
- Company Administration – Placing a company into administration gives time, space, and also legal protection while a route forward is plotted. Once an administrator – who must be a licensed insolvency practitioner – is appointed, they will take control of the company and must strive to negotiate the best outcome for the company’s creditors.
Administration is not a permanent solution in itself, and it is not a state a company can remain in indefinitely. There are several ways a company can exit administration, ranging from a sale of the business, an alternative insolvency process such as a CVA, or eventual voluntary liquidation if the company is not deemed viable.
- Corporate Simplification and Streamlining – Undergoing a process of corporate streamlining or simplification can help save viable elements of a struggling business. Business simplification aims to identify non-performing areas of a company which to ensure it is operating as efficiently and effectively as possible. By ensuring money, time, and resources are diverted away from less profitable areas of the company and funnelled towards the revenue-generating arms, a process of corporate streamlining can help to save selected areas of an otherwise underperforming company.
- Financing and Refinancing Options – If a company is experiencing cash flow problems, the situation can quickly escalate out of control. Depending on the root cause of squeezed available capital, seeking additional finance to help plug this cash flow gap could be a solution. Funding could take the form of a traditional bank loan which provides a lump sum of cash, or an alternative channel of commercial finance such as invoice factoring or discounting which gives a company access to the money tied up in unpaid invoices.
For those companies with existing finance arrangements already in place, it may be worth exploring whether this borrowing can be refinanced at a more competitive rate, lowering contractual monthly repayments, and immediately freeing up vital cash flow.