Informal Creditor Negotiation & Restructuring
Not every company with overdue debts needs to go straight into a formal insolvency process.
If the underlying business is viable, it may be possible to negotiate directly with HMRC, suppliers, landlords and other creditors and give the company time to recover.
That might mean agreeing instalments, extending payment terms, securing a temporary standstill or restructuring the company’s finances.
The important question is whether more time will actually solve the problem.
If the company can trade profitably and gradually reduce its arrears, informal restructuring may be exactly what is needed.
If debts are increasing every month, negotiating longer to pay may simply delay an unavoidable insolvency.
What is informal creditor negotiation?
It simply means reaching agreements directly with creditors without putting the company into a formal insolvency procedure.
For example, a company owing several suppliers might agree to:
- Pay current purchases normally
- Pay historic arrears by monthly instalments
- Clear smaller balances immediately
- Agree longer terms on larger debts
HMRC arrears may be dealt with separately through a Time to Pay arrangement, while a landlord or lender might agree their own revised terms.
There is no single statutory formula. The restructuring is built around what the business can genuinely afford.
When can an informal arrangement work?
Usually where the problem is temporary rather than fundamental.
For example:
- A major customer paid late
- The company lost a customer but has replaced the work
- An unexpected cost caused a short-term cash shortage
- Trading has improved after costs were reduced
- A temporary HMRC debt can now be repaid from normal cash flow
- A funding gap can realistically be bridged
The strongest case is where you can show creditors that the business is already improving and that the proposal is based on realistic numbers.
What can I ask creditors to agree to?
That depends on the creditor and the company’s position.
Possible requests include:
- More time to pay
- Weekly or monthly instalments
- Payment of future supplies normally while historic arrears are reduced separately
- A temporary payment holiday
- Extended credit terms
- A short standstill while funding or a business sale is explored
- Settlement of a debt for an agreed lump sum
- A temporary rent concession or revised lease arrangement
A creditor does not have to agree.
The more credible the proposal, the more reason they have to consider it.
What makes creditors more likely to say yes?
Creditors normally want to know three things:
- Why wasn’t I paid?
- When will I now be paid?
- Why should I believe the company can keep that promise?
A useful proposal therefore explains:
- What caused the problem
- What has changed
- How much the company can afford
- When payments will start
- How long repayment will take
- How future liabilities will be kept up to date
“Sales should improve next month” is not much of a restructuring plan.
A short cash-flow forecast showing that the business can afford the proposed payments is much more persuasive.
Do all creditors have to agree?
No — but this is also one of the weaknesses of an informal arrangement.
You negotiate with creditors individually.
One supplier may accept 12 monthly payments while another demands immediate payment.
Unlike a properly approved CVA, an informal arrangement does not automatically bind dissenting creditors as a group.
A creditor that has not agreed to hold action can potentially continue pursuing its own debt.
This becomes particularly important where one creditor is already threatening formal enforcement.
Does negotiating with creditors stop legal action?
No, not automatically.
Simply telling creditors that the company is restructuring does not create legal protection.
Unless a creditor agrees to hold action, it may still be able to pursue:
- Court proceedings
- Sheriff officer enforcement
- Bank arrestment
- A statutory demand
- A winding-up petition
If serious enforcement is already under way, we need to know that before deciding whether an informal approach gives the company enough protection.
What if we need protection while a rescue is worked out?
There are formal options that can provide breathing space from creditor action in appropriate circumstances.
One is the company moratorium.
A moratorium can initially provide 20 business days of statutory protection while directors explore a rescue or restructuring.
The directors remain in control of the business, but a licensed insolvency practitioner acts as the independent monitor.
It is not needed for every restructuring. But where one aggressive creditor could derail an otherwise viable rescue, formal breathing space may be worth considering.
What about HMRC?
HMRC usually needs to be dealt with separately rather than simply included in an informal supplier payment plan.
If the company can repay its tax arrears while keeping future taxes up to date, HMRC may agree a Time to Pay arrangement.
This can work well alongside wider restructuring.
For example, a company might:
- Agree HMRC Time to Pay
- Renegotiate supplier arrears
- Reduce overheads
- Agree new terms with its landlord
- Introduce appropriate working capital
But the numbers have to work together. Agreeing affordable arrangements separately is no use if their combined monthly cost is unaffordable.
Should every creditor get the same offer?
Not necessarily. Different creditors can have different commercial and legal positions.
For example:
- A critical supplier may require current purchases to be paid immediately
- HMRC may require a separate Time to Pay proposal
- A secured lender may have contractual rights over company assets
- A landlord may be considering ending the lease
But if the company is already insolvent, directors need to be careful about why particular creditors are being paid.
Your responsibilities increasingly focus on protecting creditors as a whole and avoiding action that makes their position worse.
In particular, do not pay a creditor simply because:
- You personally guaranteed the debt
- The creditor is a friend or family member
- You want to protect a connected business
If the company is close to insolvency, take advice before making unusual or substantial selective payments.
What if I have personally guaranteed some of the debts?
That can make negotiations more complicated.
A personal guarantee gives that creditor a potential route against you personally if the company does not pay.
It is understandable that directors feel more pressure to deal with those debts first.
But if the company is insolvent, decisions about company money should not simply be driven by which payment best protects the directors personally.
We would normally look at the company’s restructuring and your personal-guarantee exposure together.
What other changes might be needed?
Creditor negotiation alone rarely fixes a business if nothing else changes.
A wider turnaround might involve:
- Reducing unnecessary overheads
- Renegotiating property costs
- Stopping loss-making work
- Increasing prices
- Improving collection of customer debts
- Selling non-essential assets
- Reducing stock
- Changing supplier terms
- Introducing appropriate new finance
- Restructuring staffing levels
- Closing an unprofitable division
The objective is not just to make creditors quieter.
It is to produce a business that can pay its way again.
Do we need new finance?
Sometimes.
A viable business can still fail if it has no working capital.
Possible funding might come from:
- Existing lenders
- New commercial finance
- Asset-based lending
- Invoice finance
- Asset sales
- Shareholders or investors
- Directors
But borrowing more money is not a rescue plan on its own.
If £50,000 of new finance simply pays £50,000 of old creditors and the company starts losing money again the following month, the underlying problem remains.
Should directors put personal money into the company?
Only after understanding what the money is expected to achieve.
Personal funding can be entirely sensible where:
- The underlying business is viable
- The amount required is clearly identified
- The restructuring is properly costed
- There is a realistic path back to positive cash flow
It is much more dangerous where directors are putting in money every few weeks simply to meet the latest urgent payment.
Before risking personal savings, ask:
“If I put this money in, what is genuinely different afterwards?”
How long should an informal restructuring take?
There is no fixed legal timetable.
But there should be a clear plan and measurable progress.
For example, over the next few months you might expect to see:
- Historic arrears reducing
- Current taxes being paid on time
- Supplier balances returning towards normal terms
- Cash flow improving
- Less reliance on director funding
If the opposite happens and debt continues increasing, the restructuring needs to be reconsidered rather than endlessly extended.
When should we move from informal negotiations to a CVA?
A CVA may be worth considering where the underlying business remains viable but informal negotiation cannot bring enough creditors together.
For example:
- There are too many creditors to negotiate with individually
- One or two creditors refuse a reasonable proposal
- The company needs a formal compromise of historic unsecured debt
- A longer structured arrangement is required
- Creditors would receive a better result than in liquidation
A CVA can bind qualifying creditors once the necessary voting thresholds are achieved, which an informal arrangement cannot do.
When might administration be needed?
Administration may become relevant where an informal restructuring needs something it cannot provide — particularly formal protection from creditor action.
It may also be appropriate where:
- A valuable business needs to be sold
- Creditor action could destroy value immediately
- A significant restructuring needs to take place
- Independent control by an insolvency practitioner is required
When should we stop trying to restructure?
This is sometimes the most important question.
Rescue should have a realistic objective, not become a reason to avoid making a difficult decision.
Warning signs include:
- The company is still making trading losses
- New HMRC debt continues building up
- Agreed creditor payments are being missed
- Wages are becoming difficult to fund
- Key suppliers have withdrawn support
- There is no realistic new funding
- Directors are repeatedly funding normal operating losses
- Every cash-flow forecast depends on sales significantly exceeding current performance
If those problems cannot be corrected, continuing to trade may simply increase the amount creditors ultimately lose.
At that stage, a controlled liquidation may be better than allowing the company to fail through creditor enforcement.
What should I do first?
Before contacting every creditor with different promises, get a clear picture of the business.
- List what the company owes. HMRC, suppliers, landlords, lenders and other creditors.
- List what is overdue now.
- Identify formal enforcement. Statutory demands, sheriff officers, arrestments or winding-up threats.
- Work out the company’s normal monthly cash requirement.
- Produce a realistic short-term cash forecast.
- Decide what the company can genuinely offer creditors.
- Identify what needs to change inside the business.
- Set a point at which the restructuring will be reviewed.
You do not need perfect accounts to start this discussion.
A realistic understanding of what comes in, what goes out and what is already owed is enough for an initial assessment.
Informal Restructuring FAQs
Can I negotiate directly with company creditors?
Yes. Informal agreements with creditors are one recognised option for a company experiencing financial difficulty.
Do creditors have to accept my proposal?
No. Informal negotiations rely on each creditor agreeing to the proposed terms.
Does an informal arrangement stop legal action?
No. A creditor can retain its enforcement rights unless it agrees otherwise. Formal protection may need to be considered if creditor action threatens an otherwise viable rescue.
Can HMRC be included?
HMRC may agree its own Time to Pay arrangement where the company can afford both the arrears repayments and its future tax liabilities.
Do I need an insolvency practitioner?
You do not need a formal insolvency appointment simply to negotiate with creditors. However, professional restructuring or insolvency advice can help establish whether the proposal is realistic and whether directors are continuing to act appropriately if the company is already insolvent.
Will creditors write off part of their debts?
A creditor can voluntarily agree a settlement, but it does not have to. If a wider formal compromise of unsecured debts is required, a CVA may be more appropriate.
How do I know if restructuring is working?
Historic arrears should begin reducing while current wages, taxes and normal trading costs are paid on time. If total debt continues increasing, the plan needs to be reconsidered.
What if the company cannot be rescued?
If there is no realistic route back to sustainable trading, directors should consider formal insolvency rather than continuing to increase creditor losses.
Can we sort the problem out without formal insolvency?
Sometimes, yes.
Our starting point is not to put a company into liquidation simply because some creditors are overdue.
We first want to understand whether there is a viable business underneath the debt.
If there is, we can look at the cash flow, creditor pressure and practical changes needed to give the business a realistic chance of recovery.
If the numbers show that recovery is no longer credible, it is better to know that before directors invest more money and the company incurs more debt.
The aim is the right outcome for the business — rescue where it is realistic, and an orderly insolvency where it is not.