When a company can no longer pay back its debts to lenders before the due date, that organisation becomes insolvent. Insolvency can lead to proceedings where legal action is taken against the business, and assets may be liquidated to pay off outstanding debts. Companies may opt to contact the creditors directly to sort out debt payments into manageable instalments, or they may get an insolvency practitioner involved and benefit from their experience and expertise in dealing with insolvent companies.
A business may find themselves insolvent for a number of reasons such as hiring inadequate accountants, rising vendor costs, an increasing number of competitors, failing to adapt to changing customer needs or any significant unexpected expenses. Insolvency practitioners in London can help rescue a business or limited company from debt.
What do insolvency practitioners do?
Insolvency practitioners try to find an appropriate financial solution for a business to help get them out of debt without having to resort to liquidation, as this usually results in the termination of that business’s activities.
When a business is in financial difficulty, it may seek advice from a licensed insolvency company. Only a licensed insolvency practitioner is authorised to provide insolvency services in the UK, as they are uniquely qualified to make recommendations that result in the best outcome for the company and its creditors.
Their rescue procedures involve trying to keep the business in operation while they are insolvent. Insolvency practitioners have a few different options to help financially struggling companies.
Company Voluntary Arrangement
One way to help a company relieve its debts is for its insolvency practitioner to arrange a Company Voluntary Arrangement (CVA) between the business and its creditors. This allows the business to pay off its debt with manageable monthly payments over a fixed period of time, typically around five years. This process can help take the pressure of the outstanding debts off of the business and allow them to continue trading as they make the repayments.
75% of the creditors (by debt value) need to agree to the arrangement, at which point the insolvency practitioner becomes the middleman between the creditors and the business from that point forward. Creditors will no longer be able to contact or hassle the company for repayments and, provided the business keeps up with its monthly payments, it is free to continue operating.
Time to Pay Arrangement
If your business is unable to meet its tax payments in full and on time, HMRC may pursue legal action to shut down the company. They have the power to issue a winding up petition without recourse to the courts.
A Time to Pay Arrangement (TTP) is an arrangement with HMRC to make payments back over a more extended period; it’s designed to help profitable businesses that are experiencing cash flow problems. A TTP arrangement spreads your tax payments out and can also be used for corporation tax, VAT and PAYE. It’s recommended that you contact HMRC when you foresee problems and try to arrange a TTP as soon as possible.
The negotiations with HMRC are the responsibility of the company director, but an insolvency practitioner can negotiate on your behalf. This can be a preferable option as insolvency practitioners have the expertise and knowledge of dealing with HMRC that enables them to make a strong case for a TTP arrangement for your business.
A company with serious cash flow problems may go into administration, where a court may appoint an insolvency practitioner as administrator. This essentially creates some breathing space for the company as the administration stops all legal actions against the company and prevents closure.
The insolvency practitioner and the company directors can then work out the best course of action, such as Company Voluntary Arrangement or Creditors Voluntary Liquidation. Administration can be preferable to CVA if the business is asset rich. Administration typically lasts 12 months, giving time for assets to be restructured and for leases and contracts to be renegotiated. Control is then handed back to the directors at the end of the 12 months.
A popular method of administration is pre-pack administration, where the company sells its assets to a new company operated by the existing directors, or to an existing third party. An insolvency practitioner values the company assets, and they can choose the most appropriate buyer for the business assets.
Your insolvency practitioner will work to stop your company from being wound up by exploring such options as negotiating a CVA. If this occurs, then the administration ends.
An insolvency practitioner will use their expertise and professional knowledge to find the best possible outcome for you, your business and your creditors and help save your business from liquidation.