Business Debt Advice For Insolvency
First of all, its important to understand that insolvency is not bankruptcy. While both terms are used interchangeably, they are different.
The confusion arises because both are related to finance, debt and credit. The difference is that insolvency is a state where a person, family, business or any other entity is no longer able to pay off its creditors.
Insolvency is a financial state while bankruptcy is the process that starts after the entity is declared insolvent. Insolvency leads to bankruptcy. It can be a voluntary or compulsory process.
You will need strategic business debt advice when faced with insolvency. Learn more to know which type of insolvency solution is best for you.
Corporate Voluntary Arrangement (CVA)
A company offers this solution on its own to its creditors. It offers an arrangement that will be acceptable to the creditors.
If the creditors agree to the arrangement terms, the debts can be settled and the company can continue to trade.
The solution can be proposed by the company’s directors or the liquidator administrator.
The proposed arrangement with the creditors is approved formally by the court. Creditors are offered the solution of receiving their dues over a fixed period of time.
This solution is different from Individual Voluntary Arrangement (IVA) that applies to self employed individuals and sole traders. Corporate Voluntary Arrangements (CVA) is possible when all directors or members agree to this solution.
A company can apply for it only through a registered insolvency practitioner. This arrangement is suitable mostly for big businesses. Seek business debt advice if you want to use this option.
Pre Pack Administration
This option is used to sell an insolvent business to a third party, a trade buyer or existing directors. It is an effective solution if a petition for winding up the business is being contemplated by the creditors.
It is important not to wait until the winding up petition has been issued because after that it is not possible to use pre pack administration insolvency option. This solution gives the business owner greater control over the company.
It means continued operations and higher level of certainty. It helps preserve value of the company by selling its assets to a third party or existing stakeholders like directors, shareholders or original owners.
After the pre pack administration process is over, the company can continue to operate in a new form.
There are two types of insolvencies that an insolvent business can face if it is unable to clear its debts. The first is cash flow insolvency where the business simply does not have money to pay its debts and dues.
The second is balance sheet insolvency which refers to negative net assets of the company. In this condition, the business has liabilities that exceed its assets. Invoice factoring can be a good solution to your insolvency problem.
Your sales ledger contains values that you can release to your benefit.
The cash that you receive with invoice factoring can be used to clear your liabilities and debts. Seek expert business debt advice if you are under insolvency or facing this prospect.
Invoice factoring is a good way to borrow at a time when your poor credit situation means you cannot borrow any money.
Use this solution and get immediate access to the funds already present in your sales ledger.
Winding Up Petition (WUP)
It is a legal notice obtained by creditor through the court. The creditor files a petition in the court for winding up the insolvent company. This action is generally taken when the creditor has lost trust in the business.
You may have tried to pay the creditor but have been unable to do so due to slow sales or because of not receiving payments from your customers.
You need proper business debt advice if you have received notice for winding up petition. There are two court hearings before the compulsory liquidation process is started. A winding up petition is the first court hearing.
The creditor has to prove that the company is insolvent. Speak to an expert business debt insolvency practitioner fast if you have received such a petition.
Your company will face closure if the winding up order is processed to its conclusion.
As the name suggests, the company is forced to compulsorily liquidate. You have limited avenues available if this procedure is started. Once the winding up petition has been completed, the creditor can get the order for formal and compulsory liquidation of the company.
Compulsory liquidation is not started by the creditor only; it can be started even by the company itself, its shareholders, its directors, an administrator, an administrative receiver, voluntary arrangement supervisor, financial services authority, chief court clerk or official receiver.
This process can be started even if the business has no assets. The early stages of this process are handled by the official receiver who informs the creditors and shareholders about winding up the company.
A liquidator may be appointed if the company still retains some significant assets. Consult an insolvency practitioner for expert business debt advice if you have received winding up petition.
Key Man Insurance
A key man insurance policy can prove useful when you are facing insolvency. All businesses have some key employees who are critical to its business operations. They are not the owners, directors or shareholders.
Just a few valuable employees can contribute more in increasing sales or running your business smoothly.
Their contribution helps in the growth of your company. If such a valuable employee becomes unable to work due to an accident or unavailable due to untimely demise, your business can face lots of hardship.
A key man insurance policy can help you recover quickly in such a situation. You will be able to recover financial loss that you suffered due to the loss of a key person of your business. There can be one or many key persons in the company.
A person holding less than 51 percent shares of the company is eligible for this insurance coverage.
Insolvency can arise due to various problems. Some of these problems are not in your hand. Poor economic climate at national level or in your industry can force you to declare insolvency.
It does not mean your business is a failure. It is possible to get back on track if you take right decisions at the right time. Consult an insolvency practitioner for good business debt advice.
You will receive complete guidance from an expert specializing in insolvency.