If you fear that your company is going bankrupt, you should take action as soon as possible. In the UK, there is a supportive insolvency regime that can help you if your business is in distress. Even if the business becomes officially insolvent, it does not necessarily mean that you need to close immediately.
As soon as you are in a situation where you cannot pay the required bills or your company’s liabilities exceed its assets, you are at risk of bankruptcy. If this is the case, there are certain actions you can take to prevent liquidation.
What should you do if you fear bankruptcy for your company?
There are certain steps that you can take if your company is at risk of bankruptcy including the following;
Seek professional advice - if your company is entering insolvency, or is on the verge of bankruptcy, you should seek help from a licensed insolvency practitioner who can talk you through the procedure and can assess your company’s situation.
Company Voluntary Arrangement (CVA) - a Company Voluntary Arrangement is one which restructures the debts your company owes. It works in the favour of the creditors so that they are receiving a certain amount of their money per month. CVAs can last anywhere from 2 to 5 years and allow you as a business owner to regain some control of your business. This is a good option for any company which is assessed as still having a viable future.
Get funding - in order to avoid bankruptcy, it may be that your business needs more money. It may be difficult to secure a loan if your company is doing badly; however, there are alternative forms of finance that may be suitable for your situation. For example, installment loans, invoice finance, factoring and invoice discounting are ways of securing cash each time you send out an invoice and will depend on the company sales.
You may look at a partnership or collaboration with another company or finding ways to release equity from your business, especially if it owns valuable assets or inventory which can be used as collateral. There is also the option of payday loans for very small amounts, but these carry high rates of interest and should be used with a huge amount of caution.
Restructure your company - when you restructure your company, you can relieve some of the financial pressure currently on your business by selling some assets or making some staff redundant. While this is not always an ideal option, it may be what an insolvency practitioner advises in order to keep your company afloat before reaching the point of bankruptcy.
Go into administration - company administration is an 8-week moratorium which pauses any legal action against the company. This allows the administration to plan the company’s next steps without the added pressure of creditor threats.
What do I do if the company can’t be saved?
If your company cannot be saved and does have to be liquidated, you may need to take out a Creditors' Voluntary Liquidation (CVL). This involves the company closing down after selling all assets. With the proceeds of the sales, creditors are repaid as much as possible and any other remaining debts are officially written off.
CVL allows the company director to claim redundancy which could act as a partial financial buffer to help pay for the liquidation process or pay off some of the company debts.
What do you do if your company is already bankrupt?
If you are officially insolvent, you should cease trading immediately and stop all payments. Make sure you are keeping careful records of everything that you are doing so that you are prepared at a later date.
When you are the director of a company that has gone bankrupt, you should be acting in the interests of your creditors rather than your shareholders. You can choose to liquidate the company and write off the debts completely or another option is to try to revive the company using a company voluntary arrangement.
This article was written in cooperation with Tudor Lodge