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What should I do if my business is at risk of insolvency?

Research by Euler Hermes, the trade credit insurer, found that almost 17% of SME’s in the UK are at risk of insolvency within the coming years, as financial support from the Government comes to an end.  Manufacturers and suppliers to the automotive industry, construction and the energy sector were deemed to be most at risk. 

Government support ensured that company insolvencies have been low for the past 12 – 18 months, but these are expected to rise as support is inevitably withdrawn and repayments of Bounce Back Loans (BBLS) and Coronavirus Business Interruption Loans (CBILS) fall due.

So, what action should you take if your company is at risk of insolvency?

When should I seek advice?

By definition, a company is insolvent when:

  • it can’t pay bills when they become due; and / or
  • it has more liabilities than assets on its balance sheet.

If your company is insolvent, or you simply feel that it is struggling, it is important to seek early advice from a Licenced Insolvency Practitioner.  An Insolvency Practitioner is best placed to review the viability of your business and help you with a plan of action. 

It may be possible for the business to recover, but if this is not possible, you may need to take steps to close your company.  In these circumstances, where company debts cannot be paid prior to closure, then liquidation may be the only course of action.

What happens if my company cannot pay its debts?

A company director must always act in the best interests of the company.  In insolvency, the interests of company creditors will be paramount, and a director must take steps to ensure assets are preserved, and the position to company creditors does not worsen. 

If you do not take appropriate action, your company is likely to face enforcement action and could ultimately be forced into Compulsory Liquidation.  Even if you believe that the problems are only temporary, you should make sure that you understand the options available and be satisfied that the decisions you make are the correct ones.

How can I close my company?

In many cases you will need to consider whether the company should be wound-up (formally closed). Voluntary liquidation is an insolvency process formally known as Creditors Voluntary Liquidation (CVL).  This option means that the company will cease trading and the business itself is not usually rescued.

The procedure can be instigated voluntarily, by the directors of a company.  The Shareholders must agree that CVL is the right course of action and creditors also have the opportunity to participate in a ‘decision procedure’ at the outset of the process. 

Once in CVL, an Insolvency Practitioner will be appointed as Liquidator and will realise assets in order to make a distribution to company creditors, if possible after discharging the costs of the CVL process.  The Liquidator will submit a report to The Insolvency Service within three months of his / her appointment and once all administrative and statutory tasks have been dealt with, the liquidation can be concluded.

Call Insolvency Practitioners

Keywood Group is a Licenced Insolvency Practice, and our team has extensive experience in advising business on their options and dealing with company closure.  Our Insolvency Practitioner is licenced and regulated by The Insolvency Practitioners Association, and we will work as a team to assess the options available and provide transparent advice. We also have offices in Birmingham and London, so feel free to call us today.

If you want further information, please contact us for a no obligation chat.

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