What help is available to me if my business can’t afford to pay it’s creditors?

In business, sometimes you may be unable to afford to pay your creditors. When this happens, it’s essential to know your options to make the best decision for your business.

One option is to try negotiate with your creditors. This can be difficult, but it’s worth trying if you think you can get a better deal. You may be able to negotiate a lower interest rate, a longer repayment period, or a lower monthly payment.

Another option is to use a debt management plan or enter a Creditors Voluntary Arrangement (CVA). For this you will need more than 75% in value of those creditors voting in favour. Once settled, your creditors are legally bound to accept the terms of the CVA, even the individuals who voted against this. If approved, this agreement would give you revised repayment terms and satisfy creditors, allowing your company the time it needs to recover. A CVA will offer a much higher chance of acceptance than informal negotiations conducted via telephone or email.

A third option is to declare bankruptcy; this is only an option if you are an individual, in a business partnership, a self-employed tradesperson or an unincorporated company. However, this should be seen as a last resort option and only be considered if you have no other way to pay your debts. Bankruptcy can significantly impact your business, so you should make sure you understand all of the implications before making this decision. 

On the other hand, if you are a limited company and creditors are becoming an issue for your business, the best course of action may be to enter into a voluntary administration. This will help to protect your company from being subjected to any legal action being taken by creditors. This type of voluntary arrangement is known as a Creditors Voluntary Liquidation (CVL). This is where the court grants an administration order, meaning your creditors wouldn’t be able to take any further action. We, the insolvency practitioners, would serve as interim board members of your company operating to facilitate recovery and reduce the level of debt as much as possible.

Alternatively, if you are a limited company and you are having issues with creditors but you are still solvent, your best course of action may be to enter into voluntary winding up proceedings (otherwise known as a Members Voluntary Liquidation or MVL). 

No matter what option you choose, it’s essential to communicate with your creditors. Let them know what’s going on and why you can’t make your payments. They may be willing to work with you if they understand your situation. 

However, it is important to note, that if you do continue to trade while knowing your business is insolvent (i.e. unable to pay its bills and with debts that exceed the combined value of all its assets), this could result in a wrongful trading prosecution, should your creditors decide to take the matter further and force the business into compulsory liquidation.

If you’re struggling to pay your creditors, don’t despair. There are options available to you. Talk to your creditors and see what can be done to help you get back on track. Alternatively, if you think liquidation may be right for your company, speak with one of our licensed Insolvency Practitioners by phoning 0345 260 0101 for advice that is free and confidential.

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