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Few companies are immune from financial problems. In recent years we’ve seen business insolvency claim all kinds of companies, from small local businesses, to famous multinationals and all stages in between. Anyone familiar with the work of insolvency practitioners, or the workings of company finances will be aware of the basic measures for insolvency; that a company is insolvent if either it is unable to pay debts when they fall due, or has insufficient assets to cover the value of liabilities. Most business owners are also aware that an insolvency company must cease trading.
Options for Dealing With Business Insolvency
In most cases, it is that first measure of insolvency which applies and this stems from cashflow problems in a business which might otherwise be capable of continuing to trade.
- Administration – This is a business rescue option where insolvency practitioners will temporarily take over the running of a business and put a plan into place to either save it and ultimately hand it back to the Directors, or if this not possible, close it down in an orderly fashion. The key advantage of being in administration is that it provides a period where creditors cannot commence legal or recovery action, so it provides a breathing space which can be used to make recovery more likely.
- Company Voluntary Arrangement – A CVA, or Company Voluntary Arrangement is a method of dealing with business insolvency by entering into an agreement with creditors of the business. A proposal will be drafted where the company offers revised terms to its debtors based on what it can afford and they then vote on whether or not they accept. This may result in them being paid less overall, or for repayments to be lower and stretched out over time, but will usually see them being better off than they would be if their debtor ended up being liquidated. If 75% (by value of the overall debt) of the creditors agree to the proposal, it is binding on 100% of them and the business can continue to trade on more affordable terms.
- Liquidation – The final option for dealing with business insolvency, Liquidation is still a company debt solution in that debts will cease to exist afterwards. Liquidation is the process where a company ceases to trade and all its assets are sold to be distributed amongst its creditors. In the case of insolvent liquidation, there is unlikely to be enough left over to repay all the company debts, so at least some of the creditors will not be fully repaid.
Get the right advice for dealing with business Insolvency
Insolvency is something that needs to b dealt with quickly if there is to be any hope of a company surviving. it’s been said that lack of profit will kill a company eventually, but it’s a slow death, lack of cashflow, however, will kill your company very quickly indeed.
When funds are tight and insolvency looks likely, it’s imperative you act fast. if your company is already insolvency, then even more urgent action is needed. In the first instance, contact us for a free consultation. The sooner you do, the more likely a solution will be available that could save your business.