How Can Insolvency Practitioners Help Failing Businesses?

Whatever the economic climate, businesses fail every day, for all sorts of reasons and in many cases, they cannot be saved. For instance, in the past any business that used to sell a lot of camera film, found its market had disappeared when digital cameras became of age (that is good enough to produce a photo quality picture).

But for businesses that are failing due to cash flow problems, or which need to change strategy and get rid of dead wood, there is hope. But the process of rejuvenation takes time and MUST be done in the correct manner.

There are also cases where those running the business feel that it has ‘run its course’ and just want a way to close the business in an orderly manner and in a way that any creditors cannot stop or delay.

In both cases, it is the Insolvency Practitioner’s job to use the correct insolvency tool.

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Saving Businesses With A Cash Flow Problem

In these cases, the company’s directors want to continue trading but are aware that, unless they take action, they could soon be accused of running a company that is said to be ‘trading whilst insolvent’, which could put the directors in serious trouble.

There are two main ways to deal with such a problem.

Debt Restructuring and Refinancing: Negotiating revised repayment terms with creditors or selling assets and leasing them back to improve liquidity and cash flow.

Company Voluntary Arrangement (CVA): A formal agreement between the company and creditors to repay debts over time, often with reduced settlements and legal protection from creditor actions. It allows the company to continue trading while repaying creditors.

In some cases, the problems of the business can be solved in another way, one that does not involve discussions with any creditors.

Refocusing On Profitable Parts Of The Business

Streamlining Operations: Another course of action that could be taken is to reduce the scope of operations, shutting down the unprofitable parts of the business, so as to save the rest.

This often involves making some staff redundant, which itself can be costly, but it is an option that must be considered.

Talk To The Experts As Soon As You Can

It can be hard to choose from these three, which makes talking to an expert as quickly as possible a MUST. Leave it too long and restructuring and it could well be too late to use the streamlining option.

Early Intervention Saves Businesses And Jobs

Early intervention by insolvency practitioners increases the likelihood of successful rescue, with many insolvent businesses saved through these procedures – statistics show insolvency practitioners rescue about 40% of insolvent businesses they work with and preserve numerous jobs.

There is another reason for using an Insolvency Practitioner, and that is when it comes to dealing with creditors; they know just how to negotiate on your behalf, using all the ‘tricks of the trade’ to ensure the best possible outcome for both parties, something that could well save a

How To Close A Company With Debts

For those businesses that cannot be saved, or when the directors or shareholders decide that it must be closed, there are again many options to consider.

These mainly depend on who is initiating the closure.

Compulsory Liquidations are normally caused when a creditor requests that a company be closed, a ‘winding up notice’ being placed on the company by the Courts. This can also be triggered by shareholders or the actual company.

In such cases a Liquidator (normally a Licensed Insolvency Practitioner) is appointed to oversee the closure.

Members’ Voluntary Liquidations on the other hand, are requested by the Shareholders of a company, but can only be used where the obligations of the company concerned can be settled within 12 months (this including any interest deemed payable), and the company is solvent.

Finally there are Creditors’ Voluntary Liquidations. Unlike Members’ Voluntary Liquidations, in this case, the company does not have enough assets to pay all of its debts, so the creditors take the option of closing the business in the hope of obtaining the maximum amount of the money they are owed.

All of the options here have varying effects on the directors, shareholders and employees of the business, some more draconian than others.

What To Do If Your Business Is In Financial Distress?

The basic message here is that the sooner advice is sought, the more likely it is that some of the business can be saved, or in the case that the directors want the company closed, that this can be achieved in the least painless way possible.