Company Insolvency Advice and Corporate Financial Solutions

It is a fact of doing business, that there will be good times and some equally bad times. Trends and fashions change, and companies can get caught out and left behind by these changes. Blockbuster for instance failed to realise the potential of streaming, and soon became a relic of the past.

Other companies become insolvent without any culpability. The pandemic could not have been foreseen by anyone, and this caused closures and bankruptcies across the UK and the rest of the world.

According to the Office of National Statistics, in quarter 3 of last year, there were a staggering 100,835 closures in the UK. This was an increase of 50% from the same period of the year before.

Before liquidation comes insolvency typically, and during this period there is often the chance to straighten the ship and get a business back on the right track. To do this, companies need to consider insolvency advice, and what financial solutions may be available.

What happens when a business becomes insolvent?

Insolvency refers to a company, or an individual, being in a state of financial distress. This means simply that they are unable to meet their financial responsibilities, whether this be suppliers’ invoices, loans, or other creditor fees.

This can be caused due to cash flow problems, or other factors such as expanding too quickly, or financial mismanagement.

Whatever the cause of the insolvency, it all points to the inability to pay dates on the date that they are due. This can mean employees and lenders alike are not being paid.

When this happens, a business can apply for insolvency through the courts.

What happens if a firm applies for insolvency?

A company can apply for voluntary insolvency, and a creditor can also pursue court action for unpaid debts. When a company declares that they are insolvent, it must undergo two tests.

The first test is regarding the company’s cash flow situation. This is known as cash flow insolvency and is a means to establish whether the firm has enough liquid assets (i.e. cash) to pay its outstanding debts. This only refers to liquid cash and not any assets the company still has such as stock.

The next test looks at the company’s property and inventory. This is known as balance sheet insolvency. This test compares how much the assets of the company are worth compared to the outstanding debts.

Does insolvency mean a company will inevitably be liquidated?

There are many factors to consider before closing a business, and liquidation is not always the answer. However, if a company files for insolvency the court can order that assets are liquidated to pay off the outstanding creditors.

A company facing insolvency though has not necessarily reached the end of the line. As long as the owners do not wait until the precipice has been reached, then there are still options.

If administration and liquidation are inevitable, there is still help out there for companies to take. It is critical during these times that business owners reach out for impartial, and ideally, tailored insolvency advice.

What should a company do when they find themselves becoming insolvent?

The director of a limited company should approach their creditors in a timely manner and discuss the situation with them. They may find that the creditor is willing to negotiate a plan for repayment that works for both parties. This can ease the burden on the debtor while giving some confidence to the creditor that the debt will be paid.

Yet, sometimes this approach will not work. Perhaps the creditor has cash flow concerns of their own. After all, the last couple of years has not been forgiving for any business generally.

In this instance, the first thing a business should do if they find itself in financial distress is to get insolvency advice. A professional company insolvency practitioner can advise on a number of areas.

These include, but are not limited to, the following:

• Cash flow concerns
• Liquidation and closure
• HMRC tax debts
• General resolutions
• Redundancies
• Winding up petitions
• Rescue solutions

These practitioners are experienced with all manner of businesses that find themselves struggling for a variety of reasons. They are often also adept in helping to find solutions that will allow a business to carry on trading, and avoid going into administration.

What are corporate financial solutions?

Companies facing insolvency or ones that are heading into cash flow problems can still recover. There are plenty of steps for a successful business turnaround that could be taken.

Corporate finance solutions could refer to several areas including restructuring a business, finding sources for funding, and refinancing. It could take into account ways to help rescue a business from insolvency too.

Fortunately, there are plenty of rescue solutions within the realm of corporate financing. Invoice discounting and factoring are viable routes to improve immediate cash flow issues.

Corporate finance solutions could also refer to buyouts by management, mergers and acquisitions, managing seasonal cash flow fluctuations, and helping to stabilise a building during its turnaround.

Insolvency practitioners can help to advise on the right type of rescue plan depending on the particular issues at hand.

What kind of rescue plans could be put into place to get out of insolvency?

There are options for companies that are becoming insolvent that can help them to continue trading if the other parties concerned agree. There are also some ways to help finance a turnaround as well.

Time to Pay Arrangements can be put in place with the HMRC when tax payments have fallen behind. This can refer to corporation tax, PAYE, VAT, or CIS tax. A company insolvency practitioner can help to negotiate a reasonable time frame for the business to catch up with its obligations rather than being forced into administration.

Refinancing may be a possibility if the company still has creditworthiness, although further debt is not normally recommended. What may be a more viable option is invoice factoring, or finding new investors.

Company Voluntary Arrangements are another option. Much like an Individual Voluntary Arrangement, the company agrees with its creditors to a payment plan to pay back their debts over a specified period. All creditors have to agree to the terms for this to work, however.

The reason for using an experienced insolvency practitioner, or advisor, is that they are more likely to put together a compelling case for allowing the company more time to meet its obligations, and pay its debts. A director of a company may not be able to make quite the same case for assistance that an insolvency advisor can.

Insolvency advisors can also help with Bounce Back loans. Although these were put into place to help businesses continue through the tough times of the lockdowns and the pandemic. Not every business has bounced back, so to speak. Many now find themselves unable to repay these loans.

Summary

Insolvency is a very unpleasant, but realistic, fact for many businesses. This is especially true in recent times. If the worst happens, some experienced advisors can help to guide a company through the process.

Yet, these same advisors can also help companies to turn things around before they are too late. Not everything about becoming insolvent is doom and gloom, and many firms do come out of insolvency to continue trading and return to good financial health.