Getting stuck under the weight of supplier debt can be extremely stressful for any business owner. Many small and medium sized businesses struggle to balance their outgoings and incomings, and because of the size of these companies, all it takes is the loss of one big customer to tip the balance unfavourably.
It’s not uncommon for businesses to have cash flow issues, but it can cause real problems when you have suppliers to pay. Sometimes, this issue is just short-term and you can negotiate with your suppliers to either extend your line of credit, or work out an extended payment term – e.g. moving from 30 days to 60 days.
However, if the issue becomes a long-term problem, you’ll have to start looking at other options…
Company Voluntary Arrangement (CVA)
If you feel like your company has a future and you can see some way out of your debt woes – for example you’re awaiting payments from various customers – you may be able to enter into a Company Voluntary Arrangement (CVA). This is a formal agreement where the creditors accept a sum of money as a way of settlement towards the debts which are owed to them. The proposal requires the approval of at least 75% (in value) of the creditors to go ahead and can last up to five years. Once the proposal to reduce or remove your debt has been approved, it is legally binding. A CVA allows your company to continue trading to (hopefully) become profitable again.
Creditors’ Voluntary Liquidation (CVL)
If it is believed that there is no way back for your company i.e. it will not be able to repay the debts it owes, then a Creditors’ Voluntary Liquidation (CVL) could be the best solution. If a company does go into CVL, it means it will stop trading and be liquidated. This process acknowledges your duties as a director and ensures everything is dealt with in a legal and correct way. It allows you as a director to keep your reputation intact should you wish to start a new venture in the future.
Avoiding a Compulsory Liquidation
What you don’t want to happen is for the company to be forced into a Compulsory Liquidation. This is where your creditors who are owed more than £750 issue a winding up petition against your company.
If the petition is successful, your company will be forced into liquidation and all of your company assets will be sold in order to raise money to repay the outstanding debts.
Compulsory Liquidation is the most serious and troublesome insolvency procedure. It seriously damages your business reputation. Some of the effects could be:
- your future credit terms from lenders might be adversely affected
- professionals (e.g. banks & other lenders, accountants and solicitors) may take a dim view on directors who took this course of action, rather than taking control of the situation
- you might be viewed as someone who has been complacent and reckless with regards to your fiduciary duties
The most important thing to do is realise that you have options and, by acting sooner rather than later, you’ll get yourself into a much better position. It’s worth remembering that taking action before action is taken against you is always preferable.
Clarke Bell are Licensed Insolvency Practitioners who can provide you with free, no obligation advice.
Contact us to get started 0161 907 4044 / [email protected].