How can I turn my struggling company around?
When a company struggles with insolvency, the Company Directors may think that it is the end of their business and that liquidation is the only solution. In reality, there are options available to insolvent situations that can help to turnaround a business and help it to trade forward with a positive cash flow forecast.
This article will discuss how an Independent Business Review can help a Company Director understand the situation of their company and what recommendations a third party would suggest to help restructure the company. It will also discuss two formal business rescue procedures; Company Administration and Company Voluntary Arrangement.
Step 1: Seek Professional Advice
The first step for any business when they notice a problem with insolvency is to seek professional advice from either an accountant, solicitor or an Insolvency Practitioner. All 3 will be able to guide you on what options are available for an insolvent company however only an Insolvency Practitioner can be appointed on a formal insolvency process. It is therefore recommended that you speak to an Insolvency Practitioner before any action is taken in order for them to help determine if a Company Voluntary Arrangement or Company Administration are viable options for your business.
Step 2: Undertake an Independent Business Review
An Independent Business Review (IBR) is a process which is carried out by a third party who will come in and evaluate the company across a number of different areas. These areas include:
- The current trading & financial position
- Profit & cash flow projections
- Current business & financial strategies
- Any bank security that has been taken
- The current management structure within the business
You would look to complete an IBR if you are looking to evaluate the financial and operational aspects of a company in order to identify areas that can be restructured in order to be able to trade out of the current insolvent situation. This review will highlight areas within a company that could benefit from reorganisation in order to work towards a successful solution for their business.
A company would typically look to carry out one of these reviews if they are having issues with any of the following:
- Difficulty raising finance
- Struggling to pay employees on time
- Difficulty raising finance
- Exceeding credit terms
- Incurring trading losses
Step 3: Decide if a formal process is still required
Once a review has been conducted and the report has highlighted areas that can be changed in order to support the company trading forward. There will then be a decision for the Company Director to make to see if they require support during this restructuring time by entering a formal business rescue process.
There are two processes available for this depending on the situation of the company and ultimately the end result the Company Director wishes to pursue. The processes are:
- Company Administration
- Company Voluntary Arrangement
In the first quarter of 2015 Company Administrations stood at 432 which is an increase of 9.2% from the previous quarter. This process has slowly been decreasing in numbers, despite the beginning of this year seeing a slight increase.
A Company Administration provides legal protection for a company that is looking to restructure to achieve one of the following 3 things:
- Rescue the company as a going concern
- Achieve a better result for the company’s creditors as a whole than if the company were wound up
- Realise property in order to make a distribution to one or more secured or preferential creditors
Many companies who look to enter a Company Administration would be looking to purchase the goodwill and assets of the business in order to be able to re-open under a new limited company.
There is also an option prior to Company Administration called Pre-Pack Administration. This is where a sale of the goodwill and assets will take place prior to the company entering Company Administration. This is a very effective process if a Company Director is looking to re-open their current business within a new trading company as it will allow for the business to trade forward debt free without needing to enter a trading Company Administration process.
Company Voluntary Arrangement (CVA)
In the first quarter of 2015 CVAs continued their decline in numbers with a -31.1% drop compared to the previous quarter. This meant only 93 companies entered into this business rescue process during the first part of the year.
This business rescue process is a legally binding agreement between a company and their creditors. In the agreement it states an agreed pence in the £ offer that will be paid over an agreed period of time. These agreements must be approved by 75% of voting creditors.
How F A Simms & Partners can help
For a company that is struggling with insolvency and looking for impartial confidential advice, the first step would be to contact an Insolvency Practitioner firm such as ourselves.
With 4 Insolvency Practitioners, here at F A Simms you will speak directly to a fully qualified adviser and receive free advice. Following this conversation you may also wish to arrange a meeting with one of our advisers who will be able to go through the different processes in more detail with you. This initial meeting is also free, and can be held at a convenient location to you.
If a decision is made to proceed with appointing us to your business we will fully support the Company Director through the entirety of the process. We always have 2 Insolvency Practitioners and a Case Manager appointed on every case so there will always be someone available to answer your questions. We will also prepare all mandatory and statutory paperwork and convene all statutory meetings. We will become the first point of contact for both creditors and employees to contact if they have any questions which will help to take the burden off of the Director.
If you would like to contact us for some initial advice, then please phone today on
01455 555 444 or alternatively you can email your query to our Insolvency Practitioners at: firstname.lastname@example.org or finally you can fill in the form on the right-hand side of this page for a free call back.