Turnaround - FAQ's

The company has cash flow problems, can I safely trade out by cutting staff and overheads?
It is important that whatever steps you take does not result in the position deteriorating for your creditors. You need to prepare a plan for trading out which starts with up to date accounts and balance sheet and then incorporates forecasts to cover your trading out period. This plan needs to be discussed with the company's senior people and then embraced.

During the course of the recovery stage, constantly review the process, minute your meetings and compile information as to your actions. In the future if the plan does not work this helps defend your actions.

If it is apparent that you cannot get creditors to agree to withhold action and also that your cash flow falls short of meeting the company's ongoing liabilities, you need to seek advice from a licensed insolvency practitioner.

There are rescue procedures which will prevent creditor action and also provide debt forgiveness which may relieve the pressure on your company's cashflow.

The company needs to downsize its workforce but cannot afford the redundancy costs.

It is possible to get assistance from The Department of Trade and Industry (Redundancy Payments Office “RPO”) to contribute towards these costs. The company will have to demonstrate that it lacks the funds to settle these costs and that the assistance will in turn help to save a significant number of jobs. The RPO will require that the monies advanced to your company’s employees are repaid by the company or perhaps even an associated company and the timing of the repayments will depend on the company’s financial position. For more information click here.

Will the Revenue agree a payment plan?
It is possible to reach an agreement with HM Revenue and Customs “HMRC” which could allow the company to repay arrears over a period. HMRC operate a time to pay scheme and depending on the company's circumstances, this could allow the arrears to be cleared over a relatively short time period. The factors that the HMRC will consider is the company's history of making payments, has the company failed to keep to payment arrangements in the past, or all the returns up to date and what your proposals are for keeping up to date with your current commitments.

Also through your local business link, HMRC operate a Company Rescue Scheme which again could allow the arrears to be cleared over a period.

In our experience it is rare that HMRC will allow any more than 6 months to clear the arrears. It is important to note that the debts of HMRC are now unsecured and would rank equally with other claims if the company entered into a CVA (link). For example, the company may be able to propose that the debts of unsecured creditors are paid over a five year period and that a proportion of the debt is written off.

Dealing with a creditor who will not agree to a payment deal.

Trying to get all your creditors to agree to a payment deal is difficult as they will all want to improve their position. The directors must be careful not to prefer (put the creditor in a better position that it would otherwise have been but for your insolvency) a creditor. If the company eventually went into liquidation such transactions can be reversed by a liquidator. However, the pragmatic answer is - if payment to that creditor, at the same time as doing a longer term payment deal with others, ensures the overall survival of the business then it may be the correct decision to take. If the overall plan MAXIMISES THE INTEREST OF ALL CREDITORS then it is a logical step to take. Be sure as ever to note this at a management or board meeting in case the plan does not work.

What are the alternatives to struggling on with an informal plan?
There are rescue options including CVA and Administration which can provide very useful breathing space whilst a restructuring plan is put into place. The CVA in particular will allow the company to repay it’s debts over a period of time, which means that the company can put it’s working capital to better use. A CVA can provide that the company retains all it’s assets plus debtor receipts and in turn pays an affordable monthly sum to a Supervisor to distribute to unsecured creditors.

For example:-

We have recently assisted a construction company save around £14,500 a month – it was trying to clear unsecured debt at the rate of £17,000 per month and creditors have now agreed a monthly contribution of £3,500. The company can now afford to pay for materials and labour required for contracts.

Sometimes the burden of debt is even too great for a CVA to be viable and what is needed is a fresh start. The Administration process is often used to save the core business. A sale of the business can be negotiated relatively quickly whilst the company’s assets are protected from creditor action by the Administration Order.


The Next Step

The options for a financially distressed business need to be very carefully considered. Simply forward your details on our Contact Form and we will contact you. Alternatively ring us on our FREEPHONE ADVICE LINE 0800 781 0990.

There is  free debt help and advice available through a variety of debt charities. For more information, we recommend you visit https://www.moneyadviceservice.org.uk/en/tools/debt-advice-locator Alternatively if you are a business owner, self-employed or in a partnership, we recommend you visit https://www.businessdebtline.org/.

All debt solutions should be very carefully considered. Fees will be charged if a solution is taken in order for us to advise and administer the most appropriate action - all fees will be outlined during your consultation. Retained payment may place you further into arrears. You have the right to a cooling off period of 14 days. It is likely that your ability to obtain further credit in the short term will be affected and this may also be the case over the medium to long term.
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