“The risk of insolvency for your business can be minimised if you take action early”
If your outgoings outweigh your incomings and you owe your creditors far more than you can pay back, you may be thinking it’s time to throw in the corporate towel and apply for bankruptcy. By making changes to the way you manage your finances and seeking professional advice you may well save your business from going under.
Today, the risk of corporate insolvency is real for many businesses; some haven’t recovered fully from the pandemic fall-out and now we have the cost of living crisis to deal with, so whilst this blog will give you some guidance on what do in this situation, it’s not a definite route out of financial trouble.
There are 4 main steps you can take to improve your financial position:
- Improve your cashflow
- Open dialogue with your creditors
- Look into a CVA
- Seek advice from insolvency professionals
Steps to improve your business cashflow:
- Accountant updates – first and foremost, make sure that your accountant is keeping you up to date; you need a 24/7/365 understanding of your cashflow, forecast and tax liabilities status.
- Efficient invoicing – bill your customers promptly to ensure a steady flow of incoming cash; poor and sporadic collection gives the wrong impression to customers who think it’s ok to pay late.
- Reduce overtrading – only fulfil the orders you have; less stock or production means more cashflow.
- Chase your bad debtors – now is the time to start calling in the money that is owed to you.
- Sell company assets – look for assets such as IT equipment, machinery, furniture, company cars or property you can sell to get a quick cash injection.
- Reduce company spend – look for areas where you can make savings such as premises costs, wages/overtime payments or renegotiate with suppliers.
- Use finance – if you need some breathing space look at finance from your business bank; whilst not ideal, this may tide you over whilst you make other adjustments in the organisation.
- Redundancies – looming corporate insolvency means making the toughest decisions and that can include losing some of your employees; this is a sensitive area where it’s important to keep staff morale and productivity up so this needs to be managed very carefully.
Negotiate with your creditors:
- Don’t hide – by keeping your creditors in the dark and leaving them wondering when they are going to get paid, could force them to take action against you and push you into insolvency.
- Everyone’s a loser – the flip side is that if this happens, they may not get paid at all, so it’s a lose/lose situation.
- Talk to them – renegotiate where you can and be honest about how much you can pay them back. Open up dialogue with them because your creditors are perfectly within their rights to apply for your bankruptcy or ask the courts to force the closure of your business.
Look into a Company Voluntary Arrangement (CVA):
Before making a final decision on Corporate Insolvency you may be able to rescue your business by setting up a Company Voluntary Arrangement. This is a formal repayment plan that can help you to repay your outstanding debts over a period of time. You can spread the payments over monthly instalments and write off unaffordable and unsecured debt which is formal and legally binding helping you to protect your business from creditor and legal pressure. CVA’s need to be approved by 75% of your creditors, so this is another reason to stay on their good side. You’ll need the help of an insolvency practitioner to set this up and Arlingsworth Solicitors is here to help.
Avoid the insolvency process where possible – this opens up investigation into any company director’s conduct which will be closely scrutinised, possibly leading to legal proceedings for misfeasance, wrongful or fraudulent trading and you could be personally liable due to personal guarantees.
Get expert advice:
If you now find yourself if a position where you are unable to pay your debts, you can’t pay staff their wages, you’ve received a statutory demand or you have little or no working capital, now is the time to seek professional advice.
Here at Arlingsworth Solicitors, we understand how stressful corporate insolvency can be for all parties involved; you’ve worked hard to build a successful business and now the figures no longer add up. We are here to offer professional legal guidance on how to best manage your corporate financial situation and limit your liability. We specialise in providing first-class legal support on all aspects of bankruptcy and our dedicated team of experts are on hand 24/7 to provide professional legal advice and guidance.
Please contact our Brighton office on: +44 (0) 1273 696962 or our London office on: +44 (0) 203 358 0058. Alternatively, request a callback, or email email@example.com. You can also follow us on social media for any other important news and updates.
The information in this blog is intended for general information only. It is up-to-date at the time of writing. However, it does not constitute legal advice and should not be treated or relied upon as such. It is provided without any representations or warranties, express or implied.