What does insolvency mean for your business?

It can be tricky to run a business because there are so many different factors you have to take into account. If you happen to start at a time when the economy is growing, then you may have a success on your hands; the same goes if your product or service becomes in high demand.

However, sometimes, it just doesn’t work out – it might not even be your fault. If you find yourself in that situation, then you may be considering insolvency for your business. Here’s what that could mean for you and your brand.


What is insolvency?

Your company is insolvent when it can no longer pay its debts. This can be because it can’t pay bills when they are due, or it has more liabilities than assets. To guide you through such instances, you may wish to work with Hudson Weir Insolvency Practitioners, who can help you avoid company liquidation. Liquidation – also known as ‘winding up’ – can mean the company has to close, and assets have to be sold and distributed to its creditors. However, actions can be put in place to ensure that the company can continue to trade. This may ease your financial pressures as you receive guidance to save your struggling venture.

The company directors have three options to help let the company stay operating. They include:

  1. Speaking to all creditors to see if you can get an informal agreement.
  2. Entering a company voluntary arrangement (CVA).
  3. Putting the company into administration. This means that the company can continue trading.


Having a company voluntary arrangement

A CVA is a binding agreement between your company and your creditors. You and your other company directors can instigate a CVA but, if you have an administrator or liquidator appointed already, they can also propose it.

With a CVA, your creditors may agree to a reduced or rescheduled debt arrangement. This will be in return for a commitment by your company to restructure its affairs under a new business development strategy.

This will be supervised by an insolvency practitioner, to whom your directors will submit a report on your company finances with a proposal on how to reduce its debt.


Going into administration

This will save a business as a ‘going concern’ (i.e., a business that operates without the threat of liquidation for a certain period). This will keep a viable company going that’s experiencing some financial difficulties.

An administrator is an insolvency practitioner appointed by the company to investigate its affairs. This can be done either by the company or its directors, the courts (by granting an administration order), or the holder of a floating charge (an organisation that holds some security over company assets, such as a bank).

When a company is in administration, its creditors cannot – without the permission of the administrator or courts – exercise security rights in company property, repossess hire-purchase goods, or begin/continue legal action. This ‘moratorium’ means the company’s assets are frozen and are designed to help an administrator rescue the company.


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