Running a business can come with periods of financial pressure. A drop in sales, rising costs, unpaid invoices or increasing levels of debt can quickly make it harder to keep up with the company’s commitments.
When this happens, it can be difficult for directors to know what to do next. You may be trying to keep the business going while also dealing with creditors, cash flow problems and concerns about your responsibilities as a director.
This is where an insolvency practitioner can help. Getting professional advice does not necessarily mean that your company has to close. An insolvency practitioner can look at the wider financial position of the business, explain the options available and help you understand what should happen next.
This guide will cover:
- What an insolvency practitioner does
- When a business may need professional advice
- How an insolvency practitioner can assess your company’s position
- The options that may be available to a business in financial difficulty
- What directors need to consider
- Why getting advice early can be important
- How to choose an insolvency practitioner
What is an insolvency practitioner?
An insolvency practitioner specialises in dealing with financial difficulties, business insolvency and formal insolvency procedures.
Depending on the case, an insolvency practitioner may advise a company before it enters a formal insolvency process or take on a specific role once a procedure has started. Their work can include advising directors, acting as a liquidator or administrator and helping to manage formal arrangements with creditors. The right approach will depend on the individual circumstances of the company. There is no single solution that works for every business.
When should a business speak to an insolvency practitioner?
You do not necessarily need to wait until your company is formally insolvent before seeking advice. In fact, speaking to an insolvency practitioner when financial problems first become apparent can give you more time to understand what is happening and consider the available options.
Some warning signs may include:
- Regular cash flow problems
- Falling behind with supplier payments
- Increasing pressure from creditors
- Difficulty paying HMRC
- Relying heavily on overdrafts or borrowing
- Receiving County Court Judgments or statutory demands
- Struggling to pay employees or other essential costs
Looking at the company’s financial position
One of the first steps is understanding where the business actually stands. An insolvency practitioner can review the company’s debts, assets, liabilities and cash flow to help establish the extent of the financial difficulties. This can give directors a clearer picture of whether the problems are temporary or whether the company is facing more serious financial pressure.
It is also important to consider the company’s ability to meet its debts as they fall due and the wider financial position of the business. Having this information can make it easier to have an honest conversation about what happens next.
What options might be available?
For some businesses, the priority may be finding a way to continue trading while dealing with outstanding debts. A Company Voluntary Arrangement, or CVA, can sometimes provide a way for a viable company to restructure its debts and continue trading, subject to creditor approval.
Administration may also be considered where a company could benefit from protection while a solution is explored. Depending on the circumstances, administration can provide an opportunity to restructure the business, realise assets or achieve a better outcome for creditors.
Where a company cannot realistically continue, liquidation may be the appropriate route. A Creditors’ Voluntary Liquidation, or CVL, is a formal process used when an insolvent company is voluntarily wound up. An insolvency practitioner acts as liquidator and deals with the company’s affairs and assets as part of the process.
The important point is that the appropriate option depends on the company’s individual circumstances. Professional advice can help directors understand the differences before making a decision.
What about the director’s responsibilities?
When a company is struggling, there can be a temptation to make decisions to keep things moving. However, directors need to consider their responsibilities carefully when a company is approaching insolvency. For example, certain transactions or decisions could expose directors to personal liability.
Connect Insolvency specifically provides advice to directors on issues including personal liability when a company is facing potential insolvency. This is one reason why taking advice early can be useful. It allows directors to understand their position before making decisions that could have wider consequences.
Can an insolvency practitioner help save a business?
Yes, depending on the circumstances.
The involvement of an insolvency practitioner does not automatically mean that a business will be closed down. If the underlying business is viable but is dealing with significant debt or cash flow problems, there may be options for restructuring or protecting the company while a solution is considered. A CVA, for example, can allow a company to continue trading while making agreed payments towards its debts.
However, if the company is no longer viable, an insolvency practitioner can also explain the formal processes available for bringing the company’s affairs to an orderly conclusion. The earlier the financial position is properly assessed, the easier it can be to understand which options remain realistic.
Why getting advice early can make a difference
Understandably, directors may put off seeking advice. Financial problems can feel difficult to discuss, particularly when you have spent years building a business. Waiting, however, can leave fewer options available.
Speaking to an insolvency practitioner allows you to discuss the situation openly and understand what your company can realistically do. It can also help you avoid making decisions without knowing the potential consequences. You do not need to have all the answers before making contact. The purpose of an initial conversation is to understand the situation and establish what steps may be appropriate.
Choosing the right insolvency practitioner
Consider whether the insolvency practitioner understands the type of business you operate and can explain the available options clearly. A good insolvency practitioner should provide practical advice based on your individual circumstances rather than simply suggesting one solution. You should also feel comfortable asking questions and discussing sensitive financial information openly.
How Connect Insolvency can help
Connect Insolvency is a North East firm of liquidators and insolvency practitioners based in Westerhope. The firm provides advice to both businesses and directors dealing with financial difficulties. Its services include advice relating to administration, Members’ Voluntary Liquidations, personal liability and other insolvency matters. Connect Insolvency also emphasises providing impartial and practical advice to clients experiencing financial difficulties.
Speak to an insolvency practitioner
Financial difficulty does not always mean the end of a business, but it is important to understand the situation and act before the available options become more limited. Whether you are concerned about cash flow, creditor pressure, mounting debts or your responsibilities as a director, professional advice can help you understand where your company stands.
If your business is facing financial difficulties, contact Connect Insolvency to discuss your circumstances and find out what options may be available.