Managing a company that finds itself in debt can be incredibly difficult. Faced by often aggressive creditors from seemingly all sides, it can be almost impossible to work out what to do next, and it’s vital that you choose the right solutions.
There are a number of different options that will likely be available to you, depending on the state of your business. From informal discussions with creditors to liquidation, here’s an idea of what you’ll likely be facing.
Informal creditor talks
During the early stages of debt management, one of the first options that should be pursued is informal negotiations with creditors. Try to talk openly and productively with all relevant stakeholders, to come up with a reasonable plan to repay debts.
This won’t always be possible, but it’s a good way to start that can help to avoid escalation. If things have progressed past a certain point, and relations have started to sour, then this might not be a viable option. You’ll have to use your judgement to decide whether this is the case or not.
Formal solutions
If you’re unable to pursue informal negotiations, then you will likely need to employ the services of an insolvency practitioner such as Chamberlain & Co. They’ll be able to help you pursue a range of different options, including the following.
Administration
If the business is deemed salvageable, it’s possible that the business will be placed under administration. The insolvency practitioner will take over control of the company, and will potentially seek to restructure it in order to ensure future profitability.
These profits will then increase the chances that the creditors will be repaid in full at a later date, which will obviously not be possible if the company in question is insolvent. This is a win-win, as the business owners will then also potentially get to benefit from a business that isn’t struck off.
Creditors Voluntary Agreement
A Creditors Voluntary Agreement (CVA) is a formal repayment agreement that’s made between a business and its creditors. It will typically be designed to structure some kind of repayment plan over a three to five-year period and must be approved by at least 75% of creditors (measured by value) in order to be put in place. Unlike informal arrangements, it is binding, on all sides.
Dissolution & liquidation
If there’s no chance of saving the business and repaying creditors, then it might be necessary to dissolve and liquidate the company. This will require striking it off the register at Companies House, meaning that the company can no longer legally trade. The assets will then be sold off, with the proceeds distributed to creditors in legal order of priority.
This is by no means an exhaustive list of the main options. There are other solutions available for repaying tax debts, for example, and it’s important that you have a full overview of what’s on offer. Seek advice from an insolvency practitioner or other debt management professional, before it’s too late.
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