If your company is facing financial difficulties, it\’s crucial to have a clear understanding of the various business recovery options available. Should your business require urgent support, it is advisable to contact experienced insolvency practitioners without delay.
In 2023, the total number of company insolvencies reached 25,158, the highest since 1993 and a 14% increase from 2022, according to The Gazette. Notably, there was a 44% rise in compulsory liquidations and a 67% increase in company voluntary arrangements (CVAs), with creditors’ voluntary liquidations (CVLs) reaching the highest annual number since records began in 1960.
If you are concerned about potential insolvency and there is still scope to significantly reduce costs without major repercussions, this is certainly an option worth exploring first. Identifying and cutting non-essential expenses can improve cash flow and help in repaying debts.
Before proceeding with any recovery options, we strongly recommend seeking professional advice.
Alternative Financing
A key indicator of insolvency is being unable to pay debts as they fall due—known as the cash flow test. There are several financing options available to help manage this, including invoice discounting and factoring, each with its own pros and cons:
- Invoice Discounting: This method allows you to borrow against your sales invoices, providing a quicker cash inflow than waiting for customers to settle their dues. However, it comes with risks, such as still owing the debt and fees to your provider if a customer fails to pay due to insolvency.
Time to Pay (TTP) Arrangements
Introduced in 2008, Time To Pay (TTP) arrangements enable businesses to manage outstanding tax payments to HMRC over time. Typically, these arrangements last between 6-12 months, although there can be exceptions. Successfully entering a TTP arrangement can demonstrate to HMRC your commitment to settling your tax debts, thereby reducing the likelihood of legal action. However, it’s important to note that HMRC does not automatically approve all TTP proposals, and failing to meet the agreed repayments can lead to significant legal repercussions.
Administration
Appointing company administrators provides a breathing space to evaluate and possibly rescue the business. Administrators assess whether the business can continue in the long term and aim to achieve a better outcome for creditors than if the company were liquidated. If rescue is not feasible, administrators will distribute assets to creditors.
Company Voluntary Arrangement (CVA)
A CVA involves a formal repayment plan arranged by insolvency practitioners, allowing the company to continue trading while easing creditor pressures. This arrangement stops creditors from recovering interest or historical debts beyond the approval date of the CVA, with possible debt write-off after its conclusion. However, securing new credit lines during the first 6-12 months of a CVA can be challenging.
Creditors’ Voluntary Liquidation (CVL)
When debts become unmanageable and cash flow is poor, a CVL may be the most suitable option. This process, initiated by the directors, involves a moratorium period where creditors are prevented from making claims while the company ceases trading and liquidates its assets.
Both CVL and CVA are voluntary processes initiated by company directors. While they share similarities, a CVA typically offers a better chance for a business to continue operating if an agreement can be reached.
Business Recovery: Seeking Professional Help
For insolvent businesses, engaging a licensed insolvency practitioner is essential. They provide the expertise required to work through these complex processes effectively.
We understand that contemplating these options can be overwhelming. Contacting a professional at the first signs of trouble gives your business the best chance of recovery. We’re here to help should you need advice and support
