Running a business comes with financial risks, from unexpected expenses and cash flow problems to growing debts and difficulty paying suppliers. Knowing when to seek professional advice can be important, particularly when financial difficulties begin to affect the business’s future.
For businesses experiencing financial pressure, speaking to insolvency practitioners in the North East can help directors understand their position and explore the options available to them.
What this blog covers
In this guide, we explain:
- What an insolvency practitioner does
- When a business should consider seeking insolvency advice
- Common warning signs of financial difficulty
- Why seeking advice early can be beneficial
- The different options an insolvency practitioner may discuss
- What happens when you first contact an insolvency practitioner
- Why local knowledge can be valuable for North East businesses
- How Connect Insolvency can support businesses and directors
- Frequently asked questions about insolvency practitioners in the North East
What is an insolvency practitioner?
An insolvency practitioner is a qualified and authorised professional who helps businesses and individuals understand and manage serious financial problems.
An insolvency practitioner can examine a company’s financial position and explain the options available to it. The options available will depend on the specific circumstances and could be restructuring, a Company Voluntary Arrangement (CVA), administration, a Creditors’ Voluntary Liquidation (CVL) or a compulsory liquidation.
For solvent companies that are no longer required, a Members’ Voluntary Liquidation (MVL) may be an appropriate way to formally close the company and distribute its remaining assets to shareholders.
The right option will depend on the company’s circumstances, financial position and future prospects. This is why obtaining professional advice can be important before making significant decisions about a company’s future.
When should a North East business seek for Insolvency Practitioners?
One financial problem does not necessarily mean a company is insolvent. However, several warning signs occurring together can indicate that professional advice should be sought. Getting advice does not automatically mean that a company will have to close. An insolvency practitioner can assess the situation and explain whether there are options that could allow the business to continue.
These can include:
- Struggling to pay suppliers on time
- Receiving increasing payment demands
- Falling behind with HMRC payments
- Difficulty meeting payroll
- Relying heavily on overdrafts or other borrowing
- Cash flow becoming increasingly difficult to manage
- County Court Judgments or legal action from creditors
- Suppliers reducing or withdrawing credit
- Increasing levels of company debt
- Using money owed to one creditor to pay another
- Persistent pressure from creditors
Why is it important to seek advice early?
The earlier a company’s financial position is properly assessed, the more opportunity there may be to consider the available options. For example, a business experiencing temporary cash flow difficulties may have different options from a company that has reached a position where it can no longer pay its debts as they fall due.
Seeking advice early can also give directors a clearer understanding of their responsibilities and help them make informed decisions about the company’s future. There is no need to wait until the situation becomes critical before speaking to an insolvency practitioner.
What can an insolvency practitioner help with?
Initially, they can review the company’s financial position and discuss the problems it is experiencing. This can help directors understand whether the company is insolvent, potentially insolvent or experiencing financial difficulties that may be addressed through restructuring or another solution.
Depending on the circumstances, an insolvency practitioner may advise on options such as:
Creditors’ Voluntary Liquidation
A Creditors’ Voluntary Liquidation (CVL) is a formal insolvency procedure used when a company is unable to pay its debts and the directors decide to place the company into liquidation. A licensed insolvency practitioner acts as a liquidator and deals with matters such as the company’s assets, creditors, and the company’s closure.
Company Voluntary Arrangement
A Company Voluntary Arrangement (CVA) can allow an insolvent company to reach an agreement with its creditors to repay some or all of its debts over an agreed period. A CVA can provide a company with an opportunity to continue trading while dealing with its financial difficulties, provided the proposal is appropriate and meets the necessary requirements.
Administration
Administration can provide a company with protection from certain creditor actions while an administrator assesses the company’s position and considers the best way forward. Depending on the circumstances, administration may provide an opportunity to rescue the company, achieve a better result for creditors or realise assets.
Compulsory liquidation
Compulsory liquidation occurs when a company is wound up following a court order, usually after a creditor has presented a winding-up petition because the company has not paid its debts. This is different from a Creditors’ Voluntary Liquidation, where the directors initiate the liquidation process.
Members’ Voluntary Liquidation
A Members’ Voluntary Liquidation (MVL) is a formal process used to close a solvent company and distribute its remaining assets to shareholders. An insolvency practitioner can explain which options may be relevant based on the company’s circumstances.
What happens when you contact an insolvency practitioner?
The first step is generally to discuss the company’s financial situation. You may be asked about debts, creditors, cash flow, assets, employees, tax liabilities and the company’s trading position. The purpose is to establish a clear picture of the company’s circumstances.
An insolvency practitioner will then be able to explain the various options and the possible consequences of each one. This enables the directors to make their decisions on the basis of professional advice rather than attempting to handle the ever more difficult situation themselves. At Connect Insolvency, the team provides each client with impartial, practical advice, taking into account their specific circumstances.
Can insolvency practitioners help if the business in the North East wants to keep trading?
Potentially, yes.
Seeking insolvency advice does not automatically mean that a company has to be liquidated. Depending on the circumstances, formal and informal options may be available that could allow a viable business to continue trading.
For example, a CVA may allow an eligible company to continue trading while repaying creditors over an agreed period. Administration can also provide a route for businesses with a viable future or for other objectives that benefit creditors. The important point is that the available options depend on the business’s individual circumstances.
How Connect Insolvency can help
Connect Insolvency provides professional insolvency advice and formal insolvency services to businesses and directors across Newcastle and the wider North East. Its services include Creditors’ Voluntary Liquidation, Company Voluntary Arrangements, administration, compulsory liquidation and Members’ Voluntary Liquidation.
The team aims to provide practical and impartial advice, helping directors understand their position and the options available to them. If your business is facing financial pressure, getting advice as early as possible will help you to better understand what will happen next.
Frequently asked questions
When should I contact insolvency practitioners in the North East?
You should consider seeking advice when your business is struggling to pay debts, facing increasing creditor pressure or experiencing persistent cash flow problems. You do not necessarily need to wait until the company is formally insolvent.
Does contacting an insolvency practitioner mean my company will be liquidated?
No. An insolvency practitioner can assess your circumstances and explain the available options. Depending on the situation, there may be ways for an eligible business to restructure or continue trading.
Can an insolvency practitioner help with HMRC debt?
Yes. HMRC debt can contribute to a company’s overall financial difficulties. An insolvency practitioner can review the company’s position and explain which options may be available.
What happens if my company cannot pay its debts?
If a company cannot pay its debts as they fall due, it may be insolvent. The appropriate next step will depend on the company’s circumstances, including its assets, liabilities, cash flow and future prospects. Professional advice can help directors understand their options.
Can directors be personally responsible for company debts?
A limited company is legally separate from its directors, so directors are not normally personally responsible for company debts. However, there are circumstances where directors can face personal liability, which is why professional advice is important if you are concerned about your company’s financial position or your responsibilities as a director. GOV.UK provides further guidance on the responsibilities of directors when a company is insolvent.
Where can I find insolvency practitioners in the North East?
Connect Insolvency is a North East firm of insolvency practitioners and liquidators based in Newcastle upon Tyne. The team provides advice and formal insolvency services to businesses and directors experiencing financial difficulties.