No matter how well run, any business can find itself in a financially challenging situation. Whilst there is a misconception that insolvency means you owe more than you are owed, or that your balance sheet shows a deficit, the actual definition is that you ‘cannot pay your debts as they fall due’. So technically even having to ask for extended credit from suppliers, or spreading tax bills over a payment plan, could mean you are insolvent.
The problem comes when you continue to trade in these circumstances and risk losing the limited liability protection that a company or LLP provide.
The key is to make sure you are planning ahead and can justify why continuing to trade is in creditors’ best interests, and that you understand the complex rules in these situations, such as who you should and should not pay.
For other businesses the situation may be dire, and the risks of failure imminent. Again, understanding what you should, and should not do in this situation is critical.
We work with a range of insolvency practitioners to help you understand your situation, your options and the risks. If the right answer is to close the business these experts can help you through the whole process and make it as painless as possible.
Insolvency doesn’t always have to mean the end either. Sometimes all or part of the business can be saved through some form of voluntary arrangement or restructure. The right Insolvency advice can make a significant difference.
Even if there is no way back a poorly managed business failure will be extremely stressful, and might end up with you losing personal wealth as well as the business. A carefully managed closure can have a huge impact on the end result for you, your employees and on all your creditors.
The head in the sand approach never works. Face up to the situation and get expert advice early.