Rescue & Alternatives
Being unable to pay all of the company’s debts does not automatically mean the business has to close.
Sometimes the company has a good underlying business but has been damaged by one event: a bad debt, a lost customer, an HMRC arrears problem, excessive borrowing or a period of poor trading.
In those circumstances, the right answer may be to fix the financial problem rather than liquidate the company.
But rescue only makes sense where there is something viable to rescue.
The key question is not “Can we delay insolvency?”
It is “Can this business become financially sustainable again?”
What caused the problem?
This is where we would start.
A company that has temporarily run short of cash requires a very different solution from a business that loses money every month.
We want to understand:
- Is the core business profitable?
- Why have the arrears built up?
- Is the problem temporary or continuing?
- Can the company pay new debts as they arise?
- What creditor action is already taking place?
- How much additional funding would actually be needed?
If the underlying business works, there may be several ways of dealing with historic debt.
If the underlying business itself no longer works, simply rearranging the debts is unlikely to fix it.
The main rescue options
HMRC Time to Pay
If tax arrears are the main problem and the business can afford both future tax and arrears repayments, HMRC may agree additional time to pay.
Informal restructuring
Sometimes direct agreements with suppliers, landlords, lenders and other creditors provide enough breathing space without formal insolvency.
Company Voluntary Arrangement
A CVA can allow a viable company to continue trading while compromising historic unsecured debts through a formal arrangement with creditors.
Administration
Where a valuable business needs protection, restructuring or a sale, administration can provide formal protection while an insolvency practitioner takes control.
Can we just negotiate with creditors?
Sometimes that is all that is required.
If a profitable company has a temporary cash-flow problem, creditors may prefer a realistic repayment proposal to forcing an otherwise viable customer into insolvency.
The proposal needs to answer three simple questions:
- What caused the arrears?
- What has now changed?
- How will the company afford the proposed payments?
If the answer to the third question is simply “we hope sales improve”, the company probably needs a more fundamental plan.
What if HMRC is the main problem?
HMRC arrears do not automatically mean the company has to liquidate.
Time to Pay can be effective where:
- The underlying business is viable
- The arrears can realistically be cleared
- The company can pay new taxes as they arise
The danger comes where the company agrees a repayment plan but immediately starts missing the next VAT, PAYE or Corporation Tax liabilities.
That is usually a sign that more time is not enough.
When is a CVA worth considering?
A CVA can work where the company itself deserves to survive but historic debts make ordinary trading impossible.
The company needs to be capable of generating enough future cash to:
- Pay its normal ongoing liabilities
- Meet the agreed CVA contributions
- Maintain sufficient working capital
A CVA should not be used simply to keep an unprofitable business alive for another year.
The purpose is to rescue a viable company, not postpone an inevitable liquidation.
When is administration worth considering?
Administration usually becomes relevant where there is significant value to protect.
For example:
- A valuable trading business
- Employees and customer contracts
- A potential purchaser
- Significant assets or goodwill
- Creditor action that could destroy value before a rescue or sale can happen
It is a more substantial procedure than a straightforward CVL and is not usually appropriate simply because a small insolvent company needs to close.
Should I put more money into the business?
Only if you understand what it is going to change.
Directors frequently keep insolvent companies alive by transferring personal money whenever another urgent payment appears.
That can make sense if a clearly defined amount of funding solves a temporary problem.
It makes much less sense if the company continues losing money and the next request for personal funding arrives a few weeks later.
Before investing personal money, ask what the company’s finances should look like after the funding — not just what bill it allows you to pay today.
How do I know when to stop trying to rescue the company?
This can be the hardest decision.
Warning signs include:
- Current trading remains loss-making
- HMRC arrears continue increasing
- Creditor arrangements are repeatedly broken
- The business cannot fund wages or basic operating costs
- Personal funding is needed simply to survive from month to month
- No realistic funding or investment is available
- The recovery plan depends on sales far above current levels
At some point, continuing to trade can start increasing creditor losses rather than preserving the business.
That is when controlled closure should be considered seriously.
Not sure whether to rescue or liquidate?
You do not have to choose a procedure before asking for advice.
For an initial assessment, we mainly need to understand:
- What the company owes
- What cash and assets it has
- Whether current trading is profitable
- What creditor pressure exists
- How much funding would be needed
From there, we can assess whether there is a credible route back to sustainable trading.
If there is, we will explore it. If there isn’t, we will tell you rather than encouraging you to put more time and money into a business that cannot realistically recover.