Liquidation
The-City-London
Some ‘golden rules’ for companies struggling with debt
Cash flow problems can cripple businesses leaving many unable to fund future recovery. Problems with cash float and debt affects many small to medium-sized businesses. In 2012 the Business Distress Mo ...

Cash flow problems can cripple businesses leaving many unable to fund future recovery. Problems with cash float and debt affects many small to medium-sized businesses. In 2012 the Business Distress Monitor revealed that as many as one in four British businesses were struggling to pay debts.

Knowing that you are far from alone if your business is being negatively affected by debt may offer some minor comfort but if your company is beleaguered with debt and heading towards insolvency, don’t delay in seeking advice.

Take a look at some ‘golden rules’ for companies struggling with debt.

1- Don’t ignore the problem

Unfortunately debt doesn’t just go away and the longer you leave it the worse it will get. Seek professional advice sooner rather than later.

2- Prioritise company debt

Tackling priority debts first and foremost may help prevent your business from going into insolvency. For example, if one debt could mean closing the business, aim to pay that particular creditor back first.

3- Get in touch with creditors

Don’t underestimate the power of communication and get in touch with your creditors immediately to explain your business’s situation and difficulties. Aim to reach an agreement with your creditors that offers relief for both your business and them.

4- Seek advice about borrowing money to pay off debts

It may be tempting to take out another loan or even re-mortgage your home in order to pay off your company’s debt. Avoid doing anything like this unless you have considered it extremely carefully. If you are thinking about borrowing money to pay off corporate debt, get advice first, as this kind of borrowing can escalate problems in the long-term.

5- Slash your budget

Of course one of the most effective ways to sort company financial problems out is to reduce your spending. Taking various steps such as giving up an expensive city centre office for a home office and an army of remote workers, could be one step to help you slash your budget and avoid the beckoning finger of insolvency.

 

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Bank-of-England-2
British think-tank says insurance loans for SMEs will help avoid company bankruptcy
In recent years there has been a series of attempts to increase lending to SMEs and to stimulate the British economy. Although despite initiatives like the Funding for Lending Scheme, which creates in ...

In recent years there has been a series of attempts to increase lending to SMEs and to stimulate the British economy. Although despite initiatives like the Funding for Lending Scheme, which creates incentives for banks to increase their lending, more than three quarters of small and medium-sized businesses were unable to access the funding they required.

According to a recent report in the Financial Times, British SMEs currently get 80% of their finance from banks. This contrasts to the US, which raises 80% of its finance through capital markets.

In order to build confidence in lenders to lend money and borrowers to borrow it, the independent, non-partisan public policy think-tank, ResPublica is urging loan insurance to be made available for SMEs.

ResPublica’s director, Philip Blond says that forcing bank to insure loans made available to small and medium-sized businesses will not only help safeguard against bankruptcies but will also encourage lending.

The Bank of England recently revealed that lending to businesses is continuing to fall despite the central bank’s drive to make funding to banks and building societies available so they can offer cheap loans available to SMEs. In light of this failure to kickstart lending in the UK, Blond says that banks are still nervous about lending and that bridging the gap between businesses and consumers that want to borrow has not been occurring.

The idea is likely, however, to be met with a degree of scepticism, mainly due to the fact that it is a little too resonant of the Britain’s disastrous Payment Protection Insurance scheme (PPI). PPI turned into a huge financial scandal and ended up costing banks and other lenders more than £10 billion in compensation and costs.

In his report titled “Risk Waiver: Closing the protection gap and easing the flow of credit” Blond states that the debt waiver insurance would be an “ethical financial safeguard.” With only a small charge attached to it, Blond assures that the business loan insurance would overcome the problems that were associated with PPI.

In recent years there has been a series of attempts to increase lending to SMEs and to stimulate the British economy. Although despite initiatives like the Funding for Lending Scheme, which creates incentives for banks to increase their lending, more than three quarters of small and medium-sized businesses were unable to access the funding they required.

According to a recent report in the Financial Times, British SMEs currently get 80% of their finance from banks. This contrasts to the US, which raises 80% of its finance through capital markets.

In order to build confidence in lenders to lend money and borrowers to borrow it, the independent, non-partisan public policy think-tank, ResPublica is urging loan insurance to be made available for SMEs.

ResPublica’s director, Philip Blond says that forcing bank to insure loans made available to small and medium-sized businesses will not only help safeguard against bankruptcies but will also encourage lending.

The Bank of England recently revealed that lending to businesses is continuing to fall despite the central bank’s drive to make funding to banks and building societies available so they can offer cheap loans available to SMEs. In light of this failure to kickstart lending in the UK, Blond says that banks are still nervous about lending and that bridging the gap between businesses and consumers that want to borrow has not been occurring.

The idea is likely, however, to be met with a degree of scepticism, mainly due to the fact that it is a little too resonant of the Britain’s disastrous Payment Protection Insurance scheme (PPI). PPI turned into a huge financial scandal and ended up costing banks and other lenders more than £10 billion in compensation and costs.

In his report titled “Risk Waiver: Closing the protection gap and easing the flow of credit” Blond states that the debt waiver insurance would be an “ethical financial safeguard.” With only a small charge attached to it, Blond assures that the business loan insurance would overcome the problems that were associated with PPI.

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right-decisions
How to make the right decisions when your firm is in financial difficulties
Few things are more challenging than being one of the directors of a company experiencing financial problems. Every decision must be carefully weighed, but it is difficult to strike that balance betwe ...

Few things are more challenging than being one of the directors of a company experiencing financial problems. Every decision must be carefully weighed, but it is difficult to strike that balance between undue caution and making rash moves.

This is especially true when it comes to the big decisions, such as putting the firm into voluntary liquidation or going into administrative receivership. Insolvency doesn’t clarify the picture. It brings new problems and your responsibilities remain as great.

Go into liquidation prematurely and this can actually prove more damaging to members and creditors than persisting in the face of great odds. But how can you weigh up the situation? How can you remain objective and identify when you are being unduly optimistic or unnecessarily defeatist?

Be clear on the firm’s financial position

The first thing you must do is ensure you are dealing in facts. In order for this to happen, you must constantly review your firm’s financial status. Without this information, you cannot possibly hope to make the right decisions. Look at accurate figures and it may be that the situation is far better – or worse – than you imagine.

It will be the finance director’s responsibility to inform the board about the past and current performance of the company as well as to make cash flow projections. The other directors can then establish with confidence the company’s ability to pay both creditors and staff. This alone may be sufficient to prevent further, potentially debilitating, debt.

The measure of solvency or insolvency is basically whether the company can afford to pay its debts. However, factor in assets and future liabilities and it can be hard to establish a firm’s status with confidence. With this in mind, it is worth speaking to financial specialists, because if nothing else, this decision alone provides you with a degree of protection in the event of a subsequent court hearing. Deciding to take expert opinion will reflect well on the directors and any subsequent decisions are unlikely to be questioned.

Business rescue specialists

With up-to-date financial information to hand, you and a financial advisor can work to see what the best solution might be. It may be that trading can continue following a degree of restructuring for which a period in administration may or may not be necessary.

However, there are many possible outcomes and it is important to acknowledge that making use of insolvency specialists doesn’t mean that is the only possible outcome. Rather, the aim will always be to do what is best for the business.

This may mean liquidation, but it might entail selling off just some of the firm’s assets, or cutting overheads in some way. A firm’s financial situation might even be greatly improved through the simple measure of converting short-term debt into long-term debt or through reaching some sort of agreement with major creditors.

There are plenty of possible outcomes. However, the important first step is to seek professional advice to ensure impartiality and calm reasoning at a time which is likely to be highly stressful and where poor conditions could prove incredibly costly.

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administration-liquidation
Are administration and liquidation the only options?
No-one founds a company in the expectation that it will fail and no-one deliberately runs a firm in such a way that it is likely to encounter financial difficulties. However, circumstances change. The ...

No-one founds a company in the expectation that it will fail and no-one deliberately runs a firm in such a way that it is likely to encounter financial difficulties. However, circumstances change. The market may become fragmented or a general economic downtown may have an impact on business. Indeed, it is not uncommon for short-term problems to derail companies which would otherwise have endured in the long-term.

If you’re in charge of an ailing firm, you may have reached the point where administration and liquidation seem like your only options. However, before committing to one or the other, it is vital that you speak to an independent financial expert who can help evaluate the situation properly and with a degree of detachment.

Before deciding to enter either administration or liquidation, it may be possible to put together a strategy that will restore the firm’s financial position without having to resort to such drastic measures. Alternatively, it may be that administration can serve as a tool to buy some time in which a workable plan can be put into practice.

A plan of action might incorporate many different things. A change in trading strategy alone might be sufficient for the firm to recover, or it might be that certain sacrifices have to be made. Certain assets could be sold off in order to get through short or medium-term difficulties or there may be means of cutting overheads.

Other options might include gaining further financing from a bank or raising equity through seeking new investors. It may also be possible to convert short-term debt into long-term debt which might be sufficient to reverse a deteriorating financial situation. This debt restructuring can even be achieved through reaching informal agreements with creditors rather than seeking out new finance options.

Whichever route you decide to go down, your recommendations will carry more weight if supported by a financial advisor. If the board considers the plans viable, you can then go ahead, but monitor progress carefully, reviewing the firm’s financial situation at intervals to ensure progress is being made and that there aren’t alternative courses of action which could or should be taken.

When times are tough, it can be tempting to take drastic action in a bid to solve problems with one big gamble. However, this is rarely the best approach. Nor is it sensible to sit tight and hope that things sort themselves out. Action must be taken, but neither rash nor fearful.

Outside help can help you retain perspective at a time when that may prove difficult. It is easy to focus on either administration or liquidation as being an inevitably that you must sooner or later embrace, but actually it might be unwise to take such options prematurely. If you consider the various alternatives listed above, a combination of them could be better for both members and shareholders and could ultimately lead to a resurgence. Responsible business practices involve taking the most logical decisions, not simply being brave enough to embrace difficult ones and you can only deduce what to do through reasoned analysis of the company’s performance and prospects.

 

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three-main-options
The three main options for companies struggling to pay creditors
If your firm is struggling to pay creditors, the situation can quickly become out of control. If there isn’t sufficient cash available, you can find yourself in constant fire-fighting mode, paying o ...

If your firm is struggling to pay creditors, the situation can quickly become out of control. If there isn’t sufficient cash available, you can find yourself in constant fire-fighting mode, paying off who you can with little planning or forethought. However, there are options which can ensure a better managed approach. The three main options are a company voluntary arrangement (CVA), administration and liquidation.

CVA

A CVA is a means by which a company in financial difficulties can reach agreement with its creditors in order to pay off all or just part of its debts over an agreed period. It is basically the business equivalent of an individual voluntary agreement, a common financial tool for people who have found themselves in debt.

In order that you may benefit from a CVA, you will need the process to be overseen by a licensed insolvency practitioner. They will help draft the proposals and once these have been drawn up, meetings will be arranged with creditors in order that they can consider and hopefully approve them. If 75 per cent vote in favour, the CVA will be approved and once the term has concluded, the firm’s debts will be cleared.

Administration

Administration is another means of rescuing a firm that finds itself in financial difficulties. It brings a measure of control when a company is facing threats from creditors through stopping all legal actions.

One of the main aims of administration is to work out what to do with the firm and it may be that you end up organising a CVA. However, the insolvency practitioner is in control of the firm during the administrative process so it is not simply a means of keeping creditors at bay. The aim is to come up with a feasible plan for what to do with the business and this may end up being liquidation.

Liquidation

To liquidate a company means to sell off its assets in order to pay debts with the remaining money going to shareholders. There are two main types of voluntary liquidation – creditors’ voluntary liquidation and members’ voluntary liquidation. The latter is where your company is solvent but you want to close it anyway and so doesn’t really pertain to this article.

Creditors’ voluntary liquidation is an option when a firm cannot pay its debts. It involves selling off assets in order to pay creditors. In order to do this, shareholders will have to vote and pass a special resolution to stop trading.

If you feel it is necessary to place your firm into creditors’ voluntary liquidation, you will need to contact insolvency practitioners for advice and assistance throughout the process. You will then need to hold three meetings.

At the board meeting, the directors will conclude that the firm can no longer meet its liabilities and must therefore be wound up. An extraordinary general meeting (EGM) is then called in order that members can consider these conclusions and agree to creditors’ voluntary liquidation. A creditors’ meeting is then held in order to appoint a liquidator and to provide information which may be of use during the liquidation process.

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voluntary-liquidation
Opting for voluntary liquidation
There may come a time when you choose to liquidate your company. Your motivations for doing so will dictate which type of voluntary liquidation approach is relevant. Creditors’ voluntary liquidation ...

There may come a time when you choose to liquidate your company. Your motivations for doing so will dictate which type of voluntary liquidation approach is relevant. Creditors’ voluntary liquidation is an option taken when a company cannot pay its debts, while members’ voluntary liquidation is what happens when the company is solvent but you want to close it anyway.

It is important to note that in both cases, your firm will no longer exist following liquidation. Its assets will have been sold in order to pay creditors while any remaining money will go to the shareholders.

Members’ voluntary liquidation

Members’ voluntary liquidation is perhaps the more straightforward of the two processes as it is carried out without the pressures associated with unmanageable debt. By definition, the company must be solvent and so the motivation for liquidation is likely to be that you want to retire and there is no reason – or no way – for the company to continue, or that you simply feel the firm has run its course.

In this form of liquidation, the shareholders appoint their own liquidator and creditors do not need to be notified. First, a board meeting is held where the initial decision is taken, but this proposal must then be put to the members for approval. You must also be able to prove that all debts can be paid within 12 months, otherwise another approach must be taken, such as a company voluntary arrangement (CVA).

A special resolution is required in order to enter into voluntary liquidation and this will require three quarters of the members to vote in favour. This must then be advertised in the London Gazette.

Voluntary liquidation then begins and from then on, the company only exists in order that the liquidation process can be completed. The directors no longer retain power during this phase. Rather, the appointed liquidator controls matters.

Creditors’ voluntary liquidation

When a firm cannot pay its debts, it may be advisable to opt for creditors’ voluntary liquidation. Although broadly similar to members’ voluntary liquidation, the spur is the fact that the firm is insolvent and the aim is therefore to pay off the creditors.

Again, the firm will cease to exist once the process is complete. Assets will be sold in order to raise funds with any remaining cash going to shareholders.

Having contacted insolvency practitioners, the directors must then organise an extraordinary general meeting at which members can question them about the situation and hopefully agree to the liquidation process. However, unlike with members’ voluntary liquidation, a further meeting must then be called with creditors in order to appoint a liquidator as well as to provide any information which may be pertinent to the liquidation process.

The liquidator then sells off the company’s assets, distributing the proceeds first to creditors and then to members, should there be any surplus. The appointment of the liquidator also signals the cessation of the powers of directors, except where the liquidator deems that they should continue.

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debt-recovery
Debt recovery options for companies in financial trouble
Having to deal with a constant stream of pressure from creditors and the penalties that occur with late payments, can naturally cause anxiety and leave business owners and company directors facing man ...

Having to deal with a constant stream of pressure from creditors and the penalties that occur with late payments, can naturally cause anxiety and leave business owners and company directors facing many sleepless nights.

With the threat of liquidation knocking at the door, businesses naturally grapple with various ways to thwart looming bankruptcy from setting in.

Take a look at the following three debt recovery options, which can, depending on the severity of the debt, help a company recover from financial trouble.

Company Voluntary Arrangement (CVA)

If you are tired of negotiating with creditors and getting nowhere, a CVA enables a business in financial trouble to reach a binding agreement with its creditors, in terms of paying all or part of its debt within a certain timeframe.

As a CVA is a legal arrangement between a business and its creditors, an insolvency practitioner will need to create a proposal that proposes different conditions, such as accepting smaller monthly payments or extending the length of the loan.

Administration

Via an application made to the court and following the completion of the necessary paperwork, a company can be placed into Administration. Going into administration can be a potent tool in replenishing a business’s viability, coming to an arrangement with creditors and to help rescue a company that is having financial difficulties. It does however need to be noted that an Administration doesn’t always require an application to court.

Cash advances and emergency funding

Small business loans that are granted to businesses in exchange for an agreed percentage of future debit and credit card sales that are typically repaid in less than 18 months can help a business that is struggling financially.

These types of loans are commonly referred to as Merchant Cash Advance and are typically used by retail businesses that do not qualify for a standard bank loan.

 

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Companies-in-debt3
Advice for companies struggling to recover from debt
With the fragile economic status showing little sign of abating, it is hardly surprising that many businesses are experiencing fiscal difficulties and are finding it hard to stay financially afloat. B ...

With the fragile economic status showing little sign of abating, it is hardly surprising that many businesses are experiencing fiscal difficulties and are finding it hard to stay financially afloat. Both within the domestic domain and on a global scale, consumer and company spending has been significantly reduced in recent years and as a consequence of the cutbacks, many companies are struggling with cash flow problems and debt management.

Fortunately help is at hand and there are several strategies businesses can adopt to help them recover from debt.

Forecast finances

It is important that businesses cultivate a clear plan for forecasting finances. The plan should include factors that may impact the business in the near future, such as delays in orders and sale fluctuations depending on the season.

Improve credit control

Make sure that all invoices are issued to clients quickly and that all the necessary paperwork is in order and has been signed. It may also prove fruitful to check the credit history of all the new clients you take on-board to gage how proficient they are in aspects such as paying invoices quickly.

Ensure that agreed credit terms are acceptable and realistic

Cash flow problems within a business can be made worse when credit terms are faltered and even breached. This can be avoided by stipulating acceptable and realistic credit terms initially.

Evaluate stock levels

Good management of stock levels is crucial and company stock should be regularly reviewed with any unnecessary, old or obsolete stock being eradicated from existing stock.

Take full advantage of IT systems

IT systems are becoming increasingly more sophisticated and the efficiency of such software should be utilised and exploited to a business’s advantage. What might seem like a hefty initial investment can soon have paid for itself by helping companies deliver more efficient management and revenue information.

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