Business trouble because a client is insolvent In the current economic climate it is all too common for on of your major customers to become insolvent while owing you money. Here is some advice for what to do in this situation.
In the current economic climate, a number of businesses find themselves in financial difficulty because one of their major clients has gone bust. When this happens there are a number of things that must be done quickly to save the business.
The situation where one of your major customers has become insolvent while owing you money is all too common in today's economic climate..
If your client has gone into liquidation, then their business will stop trading. One of the first jobs of the liquidator will be to sell the company's assets. If any money is raised in this way, the liquidator's fees and some employee's payments will be paid first. Any remaining funds will be shared between the outstanding unsecured creditors. However, where this list is long, the amount of return to each creditor is likely to be a very small percentage of what they are owed if anything at all.
Given that the possibility of getting paid any of the money you are owed is very slim, it is far better to focus your energy on how you can save your business. There are some key operational actions you should consider:
Check your contract to see if you are allowed to reclaim any of the good you have supplied to the failed business. If you are allowed to do this, you should act swiftly.
Speak to your own creditors and try to negotiate longer payment terms with them. After all, the longer you have to pay your debts, the more time you will have to collect other money in.
One of the main costs to any business is generally its staff. If you have lost a major client, it may be a long time until you can build up replacement business. In the mean time, it may be wise to reduce your staff overhead. This is not easy and there is always the worry that you may not be able to get back key staff if business picks up. However, it is often better to take this risk to avoid you business being forced into closure.
If the hole in your company finances is too large for the above actions to help, such that you are facing possible insolvency then you should consider a formal business rescue package - either a Company Voluntary Arrangement or Pre-Pack Administration.
Company Voluntary Arrangement
A company voluntary arrangement (or CVA) is a formal agreement with your creditors to settle the outstanding debt. In order to avoid the company from going into liquidation itself, the Creditors agree to accept reduced payments over a fixed period of usually 5 years. After this any outstanding debt is written off. 50% or more of a company's debt could be written off in this way.
Pre-Pack Administration
Pre pack administration (commonly known as phoenixing) allows the assets of an old company to be purchased by a new entity. The new business is then able to continue trading without the burden of the old company's debt. The old company is then normally liquidated.
This solution may be a better way of deploying available funds to give a business a better chance of long term survival rather than using them to try and stave off creditors.
Unfortunately it is almost inevitable that at one time or other, your business will face the difficult situation of not being paid by one of its clients. When this happens, it is important to take decisive action. If the client has gone into liquidation, it is highly unlikely that you will be paid. Given this, it is important to focus on the changes you need to make to keep your company afloat rather than the impossible dream of reclaiming any money owed.
What happens to the directors if a company is wound up?
Once a company is being wound up a Liquidator will be appointed. The liquidator will undertake an investigation into the conduct of the directors to see whether they have knowingly allowed the business to trade while insolvent thus making the creditor's position worse. If this is the case, a director may face being disqualified and held personally liable for the company's debts. As a Director we look at the options you have.
What will having a County Court Judgement do to my company
If a county court judgement remains unpaid, this could lead to more serious action being taken against the business. We look at the impact and what you can do.
Company debt restructure to improve cash flow
Ensuring that enough cash is available to maintain their business must be a priority for companies. Those that do it well will survive. Those that do not are likely to fall. As such identifying problems and implement solutions which may require a radical restructuring of debt must be a priority. We discuss some of the solutions available.
