Businesses are coming under sustained pressure at the moment, and for some there is a real danger that this could lead to financial collapse if steps are not taken now to manage the situation.
The war in Ukraine, rising energy prices, supply chain issues, labour shortages, the cost-of-living squeeze, demand for higher wages and the end of Covid support are all combining to create a perfect storm of extremely difficult trading conditions.
However, as insolvency specialist, Michael Clinch explains ‘provided your underlying business remains viable, and you seek prompt advice on how to deal with the financial difficulties you face, it will usually be possible to come up with a plan that gives you a good chance of staying afloat.’
Talk to your creditors
If you are experiencing temporary financial problems, then the first thing you should do is to speak to your creditors to see if you can persuade them to enter into an informal ‘time to pay’ arrangement, which allows you to settle what you owe over a slightly longer term.
With some creditors, it may be possible for you to negotiate this type of arrangement yourself. However, with others (including HMRC) it will usually be necessary to get a lawyer involved to give you the best chance of getting your proposals accepted; and the sooner you do this, the better.
Consider a voluntary arrangement
If your financial problems are more serious or deep-rooted, then a better option may be to ask your creditors to approve either a Company Voluntary Arrangement (CVA) or an Individual Voluntary Arrangement (IVA), depending on how your business is structured.
A CVA will be appropriate if you operate as a company or limited liability partnership, and an IVA will be appropriate if you operate as a sole trader or as a partner in a traditional partnership.
Under the terms of a voluntary arrangement, it may be possible to reach an agreement with your creditors that enables some of the debt that you owe to be written off or, alternatively, to be reduced to an amount that you can realistically afford to repay within a reasonable timeframe.
To formulate proposals for a CVA or an IVA, you will need to appoint an insolvency practitioner and secure approval for your proposals from 75 per cent (in value) of your creditors. We work with a network of licensed insolvency practitioners and can tell you quickly whether a voluntary arrangement is appropriate.
Use the statutory arbitration scheme for rent arrears
If you owe your landlord rent arrears which accrued between 21 March 2020 and 18 July 2021, i.e. during the period when Covid trading restrictions were in force, then it may be possible for you to use a new statutory arbitration scheme to determine the amount of rent that should be repaid.
The arbitrator appointed can make whatever award they deem appropriate, including an order limiting or even writing off your debt if they feel that the circumstances warrant it.
To be eligible to use the scheme, you will need to satisfy a number of criteria, including being able to prove that your business was directly impacted by the pandemic and the consequent restrictions introduced by the Government to try to limit and control the spread of the virus.
We can advise you on whether you qualify to use the scheme. You can also find out further information by reading our blog on the rules governing the recovery of Covid-related rent arrears: Commercial rent and lease forfeiture: landlords’ guide to post-Covid rules.
Breathing space
If you are already coming under creditor pressure, and need time to consider your options, then you may be able to take advantage of new provisions introduced by the Corporate Insolvency and Governance Act 2020 (the Act).
This allows the majority of companies and limited liability partnerships to press the pause button on the payment of the bulk of pre-existing debts, together with the threat of creditor action, under a statutory moratorium which initially lasts for 20 days but which can be extended if appropriate.
During the moratorium you can take specialist advice and try to put together a plan to aid your rescue and recovery. This may include proposals for restructuring your business under a specific mechanism provided in the Act and which is designed to offer an alternative to the use of a CVA.
How we can help
Our insolvency specialists can support you to try to find a workable and realistic way forward.
This may be through a formal or informal arrangement with your creditors, under one of the statutory regimes that exist, or even by some other means – such as the refinancing of your debt by taking out a secured loan, e.g. through asset finance or a property mortgage, securing external investment or, if you are eligible, applying for a loan under the Government’s Enterprise Finance Guarantee.
We can also advise you on other options, like pre-pack administration to facilitate the closure of an insolvent company while allowing the underlying business to continue free of historic debt, perhaps via a management buyout or a sale to a third party.
And if the worse comes to the worse, we can help you to wind your business up in an orderly way – and where you are a company director, in a manner that gives you the best chance of avoiding any personal liability following your business’s collapse.
Contact us
To find out more, please contact Michael on 020 7845 7400 or via email at michaelclinch@iwg.co.uk.