It is possible to work through a crisis towards recovery. The key being to act early, when the first signs of distress are noticed. As we’ve said before, burying your head in the sand is not a strategy for recovery.
What is insolvency?
The ICAEW describes insolvency as “a situation when a company or individual can’t pay what they owe on time, or when the value of their assets is less than the money they owe.”
So, it maybe that in the distress stage, a business is having cash flow issues but whilst difficult and taking some close management, is still able to pay bills - albeit not on time and possibly needing to introduce staged payments to appease creditors.
Cash flow is an issue faced by many businesses; it is not unusual for a business to be surviving on a ‘hand to mouth basis’. What comes in, goes straight out again and a growing or stable bank balance seems illusive. It’s a hugely worrying time for business owners.
Ignoring the signs of distress, will eventually mean the business will arrive at a crisis point. What was thought to be difficult before, will now be extreme. Issues such as a business unable to pay its staff, HMRC, overheads or finance its operations.
In the crisis stage, there are less options open to the business owner and to the Insolvency Practitioner (IP). However, it is still advisable to seek insolvency advice from an IP rather than do nothing or try to resolve it yourself.
The benefits of enlisting an Insolvency Practitioner
- They have wide and varied experience – they’ve seen many companies with similar difficulties.
- They bring clarity of thinking to the situation.
- Their impartiality as a third party allows them to provide the best possible advice.
- They are bound by a Code of Ethics to ensure their work upholds the six fundamental principles of insolvency:
Integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour.
Using their experience, an IP will be able to identify if there is a realistic chance of recovery and future survival for the business. An IP will work with the business owners and managers on a plan to manage their way out of the crisis and avoid collapse. However, it may not be possible to recover; voluntary insolvency with the help of a professional adviser may be the only solution. Taking advice sooner rather than later can make all the difference to the outcome.
Insolvency measures- Company Voluntary Arrangement (
CVA)
A procedure which enables an insolvent Company to reach an agreement with its creditors to delay or compromise the payment of its debts.
- Administration (
ADM)
Designed to hold a business together while plans are formed either to put in place a financial restructuring to rescue the Company, or to sell the business and assets to produce a better result for creditors than a liquidation.
- Insolvent Liquidation (
CVL)
Is the process where the Directors of a (usually) insolvent Company can voluntarily take steps to wind up the Company.
- Court Winding Up (
CWU)
Is the process where the court orders that the Company is wound up.
Insolvency is a regulated profession. Be sure to seek advice from a regulated adviser as an unregulated one will have to refer you to an IP to implement a solution.
Even Keel Solutions Limited is an Insolvency Practitioner. Insolvency Practitioners play a vital role in the UK’s economy by helping to rescue businesses, overseeing the orderly wind-down of insolvent companies, and returning money to creditors in the event of insolvency. They also provide advice to financially distressed companies to help them avoid becoming insolvent. This may involve advising on a restructuring.
If you’re experiencing any signs business distress and crisis, please do get in contact with us for a no-cost initial and confidential conversation. Call us on 01202 237337. We’re an experienced team with strong values. We like to understand your needs and ensure you have the best advice possible. We’re experts in all areas of insolvency; you can read more about us on our website here.
Source credits: ICAEW & R3
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