Restructuring insolvent businesses

Restructuring insolvent businesses

Insolvency is often unfamiliar territory and causes stressful dilemmas for responsible business owners.

With early advice, there are many options available to help save businesses and to preserve value for those involved.

It is a fact of life that within the life-cycle of a business, there will be successes and also challenges. When businesses are stressed for whatever reason, we are here to provide practical help, pragmatic advice and tailored solutions.

With early advice, there are many options available to save businesses and to preserve value for those involved. Sometimes it is not possible to rescue a company or a business without the use of the options provided by insolvency legislation.

We provide free consultations on the options available if your business is experiencing challenges and, through dialogue with the relevant stakeholders, we can ensure the best outcome.

Here are some of the areas we can advise you:

Administration

We can look at whether an administration is the right option for your business. An administration can enable the rescue of the whole or part of the business as a going concern in order to give a better outcome for stakeholders as a whole.

RevealExample of ADM

An owner managed SME was referred to us by their accountant when it became apparent that they were having cashflow difficulties within their business.

A meeting was held with the directors where we explored the options of the directors maintaining control of the business, which was their ultimate goal. This led to us assisting the directors with a pre-pack administration process; which included an independent valuation agent completing an appraisal of the business, testing the market with a marketing campaign and best and final offers being received.

The directors were able to obtain their own funding and were able to purchase the business and assets of the company via the pre-pack sale. This enabled them to seamlessly continue trading keeping all of their staff under the TUPE scheme with the added protection of the notice of intention to appoint administrators, whereby no creditor or landlord was able to take any action against them whilst the rescue plan was being implemented

By completing this process, we were able to demonstrate the best result to creditors had been achieved including a return to the secured creditor and the unsecured creditors.

Company voluntary arrangements (CVA)

We can advise on the possibility of a CVA which can assist with business cashflow difficulties. With this process the directors maintain control with the business continuing to trade under a CVA. An Insolvency Practitioner acts as a supervisor monitoring the business and allowing a dividend to be paid to historic creditors at an agreed rate from ongoing profits.

RevealExample of CVA

We were approached by the finance director of a profitable bar and restaurant business based in a busy London location. The company suffered in the same manner as many of the businesses when the Covid-19 pandemic caused major disruption to the economy.

Confident in their underlying business but unable to trade and saddled with debts caused by the failure of an associated company, the directors first sought to furlough their staff in order to preserve what they could through the initial lockdown.

However it became clear to them that the company would require a degree of debt-forgiveness to enable the business to recommence trading once the government restrictions ended. A pre-pack sale of the business was considered but we and the company’s stakeholders believed that a Company Voluntary Arrangement would provide a greater return for creditors.

This was complicated by the uncertain trading conditions in the short and medium term. All parties recognised that normal trading would not resume for some time and we were able to structure the proposed contributions to ensure that:

  • the company would have the best chance of meeting its financial obligations under the Arrangement;
  • the Arrangement provided that any accelerated return to profitability would be monitored and result in increased contributions;
  • creditors had confidence that the company was paying as much as it reasonably could towards its outstanding debts.

Creditors voted in favour of approving the Arrangement and the business has been able to absorb the impact of the second lockdown to continue business and avoid the need to make any staff redundancies.

Voluntary or Compulsory Liquidation

We can help with Voluntary Liquidations or a Winding up by the Court. This will be needed when your company is insolvent on a balance sheet or cashflow basis.

RevealExample of CVL

We were approached by a director of a company that was in financial difficulties being unable to pay their bills and staff at the month end. There was increasing creditor pressure from HMRC due to unpaid liabilities and they were threatening to take winding up action.

We spoke with the director concerning the company’s situation and it became apparent that the best option would be to place the company into a creditors voluntary liquidation. This meant that we took the pressure away from the director by issuing notice to creditors that this was the company’s intention and liaised with the creditors from this point forward. It was also necessary to make all staff redundant and we supported the director through this process and dealt with all employee queries. The staff were able to claim the vast majority of the sums due to them from a government agency called the Redundancy Payments Service.

Once the company was placed into Liquidation, the assets of the company were sold via an independent agent who assisted us in maximising recoveries. This meant that there were sufficient realisations to settle the costs of the liquidation and to provide a return to the company’s creditors.

Solvent Liquidation (MVL)

We can help you to use this process for a tax or restructuring purpose when the business is solvent but needs to be wound down.

RevealExample of an MVL

One of Kreston Reeves’ Financial Planning clients was a director of a long-established property sales and letting agency. He and his co-director sold the business and assets and were subsequently seeking the most tax efficient method of releasing the value in the company to the shareholders.

This situation was referred to the Restructuring team and, after some input from our tax colleagues, the directors decided to place the company into a Members Voluntary Liquidation. There was a surplus of funds which was quickly distributed to the four shareholders (two of whom were the directors of the company).

The directors met the criteria which enabled them to apply for Entrepreneur’s Relief which allowed them to pay tax on their distributions at a rate of 10%. The other shareholders were able to benefit from capital treatment and paid tax at 20%. If a Members Voluntary Liquidation had not been used, the payments from the company would have been classed as dividends and taxed at a considerably higher rate.

As well as dealing with the formal Liquidation process, we in the Restructuring team were able to use our network of contacts to assist the directors in obtaining run-off cover and implementing a strategy to ensure the cover could be maintained beyond the dissolution of the company.

Individual Voluntary Arrangement (IVA)

We can help individuals in financial difficulties with an IVA where an agreement is reached with your creditors to write off an agreed proportion of their debts and to receive agreed payments over a period of time. This can be a flexible solution which also allows you to avoid bankruptcy.

RevealExample IVA

An individual was referred to us by their solicitor after receiving a legal demand for non payment of debt. Following a meeting with the client, it became apparent that debt had built up over time on both credit cards and within their bank account overdraft.

The client wished to seek an agreement with their creditors whereby the creditors were able to be paid a set dividend from the IVA over a period of 5 years. This allowed the individual to keep working and make monthly payments into the IVA pot whilst keeping their house and avoiding bankruptcy.

Creditor services

As well as acting in a formal capacity, we can also support clients who are impacted by the insolvency of one of their customers or another stakeholder in their business:

  • Attending creditors meetings on your behalf;
  • Helping you with the recoverability of a debt;
  • Advice regarding pension deficits;
  • Landlord support where there has been non-payment of rent;
  • Training services to businesses that deal with non-payment or with companies facing financial difficulty.

Contact our specialists confidentially if you would like to discuss and understand how these procedures may help your business circumstances.

Our insolvency practitioners provide information to help creditors understand the processes which they are involved in. The information can be found here.

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