Business debts can consist of things like arrears on rent and debts to major suppliers or the accumulation of loans and overdrafts.
An insolvency practitioner can help a business get on top of debt before things come to a head and the firm enters insolvency, and then potentially liquidated to pay off its debts.
SMEs make up over 99% of the UK’s private sector business, with a survey by Tungsten Corporation showing that nearly a quarter are at risk of insolvency.
According to a ComRes poll, insolvency services actually helped to save two out of five businesses.
If a company has issues paying its employees or taxes – or getting paid by its customers – an insolvency practitioner can help.
If a business does not become insolvent and begin to pay its creditors, it could receive a statutory demand. This gives the business 21 days to pay its creditors. If the business doesn’t respond, creditors can use this as a basis to petition for the company to be ‘wound up’.
If wound up, the company’s bank account will be frozen and its assets and/or property will be sold off to pay its creditors. However, if brought in early enough, there are measures that specialist insolvency services can take to avoid this.
For example, they can help a business buy some more time by helping them take out a new loan to pay off debts (if long-term prospects are good) and chasing up obstinate customers who owe the company much-needed cash.
When dealing with irate or impatient creditors, company directors will recognise the value of bringing in someone who can arrange creditor negotiations and help both parties agree on next steps. These informal negotiations can go a long way in appeasing unhappy creditors.
If these measures do not turn the company around, either a company voluntary arrangement (CVA) or administration will have to be considered when dealing with business debts.
With a CVA, an insolvency practitioner will make an overture to a company’s creditors, and it is up to them to accept or reject the CVA proposal. At the creditor’s meeting, 75% must accept the proposal in person or by proxy.
If the creditors accept, the business will be able to continue operating while paying its debts under a workable single monthly payment plan. The director of the company will also be able to stay in place. The CVA gives the company up to five years to repay part or all of its debts.
Company Administration Procedure when dealing with business debts
Administration is an alternative process whereby the day-to-day running of the company will still be performed by the director. However, they will answer to an insolvency practitioner, who will now ultimately manage the company. The business will be able to continue trading.
Administration, or a Company Administration Procedure, is a process that aims to protect the business from any further legal action.
Administration gives the insolvency practitioner time to decide what route to take next; either to make efforts to bring the company back from the brink, or to sell it or close it down.
Of the two options, CVA or administration, a CVA will usually be preferable to creditors. This is due to the fact that, under a CVA, creditors will continue to receive debts owed.
Lastly, if the business cannot be saved,
An insolvency practitioner will attempt to return to creditors as much of what the business owes as possible through ‘winding up’ or liquidating the company, when dealing with business debts
While this outcome is not necessarily ideal for the business, the release of cash is beneficial to the wider economy.
Insolvency practitioners can also harvest intellectual assets held by companies that are no longer solvent and release them to other businesses, thus playing a vital role in the continued stimulation of innovation in the economy.
Whether it’s cost-saving measures to avert insolvency, informal negotiations with creditors or taking over the running of the company to prevent liquidation, an insolvency practitioner can play a vital role in helping a business dealing with business debts and make the best of a very difficult situation.