There’s no denying that running a business organisation can be costly, so much so that founders and directors would decide to finance their operations and future expansion through third-party loans and other means of borrowing cash. Certainly, this would be a good strategy when things are going well for the company, but in times of financial uncertainty, the dues will pile up, and the company will no longer have the capacity to pay them. Insolvency sets in and starts to inflict major financial damage, in addition to liabilities on the part of the directors. 

If there’s anything you wouldn’t want your company to experience, it’s when creditors become its masters as they assume their legal rights over the organisation for its failure to pay up. This puts you at a disadvantageous position as you’re being forced to sell your assets and, ultimately, close. That’s not to say you have no other means to prevent these from happening. You have legal options to explore that will help you reduce your insolvency issues on the business as well as your and your partner’s reputation. Here are a few you might want to check out:

1. Renegotiate your repayment terms with creditors

Since an insolvency is the effect of losing the capacity to repay your creditors, your best option is to reach out to them and see if you could strike a deal that lets you repay what you owe while you keep the business running. Through the directors of the company, you can decide whether or not to propose a company voluntary agreement. 

For the most part, this agreement allows you to negotiate alternative terms that enable your company to pay your remaining balances at reduced rates and within a fixed term. This is the best solution to prevent your assets from being liquidated and keep creditors from taking further legal action. The company is given enough space to come up with a better debt management strategy while being able to continue trading.

2. Avoid taking high-risk financial decisions

There are cases when, in the absence of a CVA, a company can still trade even when it’s technically insolvent. This would depend on how many assets the company owns relative to its liabilities. There’s also the issue of whether the company is able to earn enough to repay its dues without missing any deadlines. 

If the company owes more than it owns and is unable to pay on time, then it must avoid making high-risk trades and actions that could lead to regulatory actions, especially in the UK, where hefty penalties are meted out for violating the Insolvency Act. Trading while insolvent and in the absence of a recovery plan could also mean additional liabilities for the company’s directors.  The only way out from this point forward is to bring the company back to a solvent position.

3. Get an insolvency professional for the job

Considering the potential pitfalls of insolvency and the steps you might take to deal with it, it matters most to seek qualified advice from the right people. Your corporate lawyer may provide advice on the implications of the strategies you might opt for, but when it comes to restoring the company to a solvent position, you may need to contact an insolvency practitioner. 

While their practice overlaps with the legal aspects of running your company, an insolvency professional’s goal is to preserve the value of your assets while ensuring your company is still able to repay its balances. They also do so while securing the interest of every stakeholder, including shareholders and employees. Working hand in hand with your corporate lawyer, an insolvency expert will make sure the company remains compliant as it seeks to come out of its debt obligations.

Endnote

To an insolvent company, the future might look bleak, but there’s hope. As long as it follows the advice above, it can overcome its financial situation and stay on track towards its financial goals.