Your choices if your business is facing financial difficulties

There are many options available to you if your business is facing financial difficulties.

Business Rescue and Informal Arrangements

Have you tried working through our business survival guide?

Lack of time is always the worst enemy of Business Rescue. The negotiation of Informal Arrangements with those who are chasing the company for money can buy time for Business Rescue.

Business recovery versus business rescue

Business recovery

It often goes without saying that managing the day to day operation of a business is fairly full-on.

Where does time come from to sit back and assess the strategic decisions of a business?

This is where the benefit of using a business recovery professional when in financial difficulties may be clear.  The added resource of an experienced practitioner to work with your business to assist in mapping out a way forward and then to work with you to deliver the solution is crucial. Please contact us at BusinessSupport.co.uk if you would like to discuss your options.

Business recovery has a long-term outlook with a view to changing the use of resources within a business to maximise its cash creation position.

Business rescue during financial difficulties

The clue is in the title.  For a business to need rescuing it must be metaphorically cast adrift without a life vest!

Business Rescue is a rapid set of measures to secure the short-term position of a business.  Once secured, a longer-term view can be taken, and a Business Recovery plan can be put in place.

Cash flow problems are the most regularly seen symptom of a business in need of rescue.  The key to finding a solution will be identifying the root causes of the cash flow symptoms.

What does BusinessSupport.co.uk mean by business recovery?

By definition more time is can be taken over a business recovery than business rescue.

The first challenge is to establish how much time the company has before business challenges and financial difficulties become out of control and the situation becomes one of rescue and not recovery.

Once such a timeline can be established issues can then be addressed in a priority-based approach.

Business debt consolidation versus business debt restructuring when in financial difficulties

Business debt consolidation

Business debt consolidation is often also referred to as corporate debt consolidation.

Debt consolidation is the process of merging or swapping existing or future business debt in order that repayment terms of the outstanding debt can be structured in a more favourable way for the business.

Business debt refers to the level of money that your business owes; i.e. your business debt is the total amount of money outstanding to your creditors.

The idea is that debt consolidation will then allow for simpler dealing with the merged or replacement creditors (those your business owes money to)

Types of creditors can be simplistically split down into secured creditors and unsecured creditors.

Business debt consolidation can take place through informal arrangements or through formal procedures under the Insolvency Act such as a Company Voluntary Arrangement

Business debt restructuring

Business debt restructuring is seen to have a similar but narrower scope than that of debt consolidation.  Debt restructuring more often than not refers to restructuring longer term borrowing from secured creditors, such as banks or asset-based financiers. 

Business debt restructuring on its own can take place outside of a formal insolvency procedure but can also be achieved through usage of formal procedures under the Insolvency Act.

Solvent restructuring when in financial difficulties

Occasionally a successful company may need to be restructured to allow for a change in direction or to release funds or assets from within the company.

Any such restructuring will have tax implications and we’re always keen to make sure that our clients do take the appropriate tax advice. 

As Insolvency Practitioners’ we can act as Liquidators for a company going through a Members’ Voluntary Liquidation. 

However, we are always sure to point out that we are not tax advisors.  Where required we can introduce you to one our tax partners or alternatively we would be delighted to work alongside your existing accountants and tax advisors.

Members’ Voluntary Liquidation (MVL)

A Members’ Voluntary Liquidation is a shareholder-controlled procedure, which affords a tax efficient method for distributing or restructuring the assets and/or trade of a company.

A Members’ Voluntary Liquidation distribution can be of liquidated assets, assets in specie or of shares in newly formed companies, which then hold the assets of the liquidated company.

A Members’ Voluntary Liquidation can only be undertaken by a Licensed Insolvency Practitioner.

Tax advice should always be taken when in financial difficulties and considering a Members’ Voluntary Liquidation

Section 110 Insolvency Act Reconstruction

In very general terms the use of Section 110 within a Members Voluntary Liquidation MVL allows for shares in a subsidiary company to be distributed to the original shareholders of a company that holds the shares of the subsidiary company.  This can make more sense when considered in the light that the new subsidiary company or companies have been formed as part of the Solvent Restructuring so this route is often used to split the trade and assets of an original company into two new companies held by the original shareholders.  Section 110 should be used in line with tax advice.

Extra-Statutory Concession C16

ESC C-16 is no longer in use.

This applied in generality when a company was being dissolved under S.652 of the Companies Act.

This is the point where we state once again that we are not tax advisers; Extra-Statutory Concession C16 was s an HMRC concession that with their approval will allow for a distribution to shareholders though classed as an income distribution to be treated for tax as a capital distribution for tax purposes.

Company dissolution – beware bona vacantia

The term “bona vacantia” literally means vacant goods and is the legal name for ownerless property, which by law passes to the crown.

In generality bona vacantia will apply to any assets left in a company once it has been dissolved.  Where care must be taken is in relation to the level of share capital left in a company.  Take a look at the website of the Treasury Solicitor and this will explain the £4,000 cut-off level.

What is an insolvency procedure during financial difficulties?

Economic or market conditions are often held out as the cause of business difficulties. They may be part of the key factors, but many individual reasons can lead to a business needing to use an insolvency procedure.

Experience shows that many reasons for business failure are outside of the control of the company.

An insolvency procedure can have a range of uses starting from formal deferral of payments to creditors  through to a managed close down.

All types of insolvency procedure require the involvement of Licensed Insolvency Practitioners.

BusinessSupport.co.uk can advise on all aspects of insolvency procedures from planning to implementation including CVAs, company liquidation and company administration. Whether you are a director or shareholder considering your options or a creditor struggling for payment, we can offer commercial and professional advice.

The following are formal insolvency procedures that require the involvement of a Licensed Insolvency Practitioner.

Limited Company and Limited Liability Partnership Insolvency Options

Insolvency options for both Limited Companies (LTD’s) and Limited Liability Partnerships (LLP’s) are largely the same.

There are a variety of options that exist for businesses facing different levels of financial pressure. 

Options exist through negotiated settlement or from legislation.

Company Voluntary Arrangements (CVA)

A process by which a company agrees with its unsecured creditors (those it owes money to) to pay back outstanding amounts in full or in part over a longer period of time.

Company Administration

A form of legal protection can be put in place through the courts to provide a shield behind which business rescue can take place.

Administrative Receivership

A creditor that holds security over the majority of the company assets can appoint a Receiver to realise value from the assets held under its security.

Insolvent Liquidation

Liquidation takes two forms: Creditors Voluntary Liquidation and Compulsory Liquidation.

Business continuity or business restart through liquidation can only generally take place through Creditors Voluntary Liquidation.

Insolvent Liquidation is just that; the liquidation of company assets to pay company creditors, usually only partially.

Striking Off and Dissolution

A private limited company (Ltd) may apply to be struck off the companies’ register if in the previous three months it has not traded or otherwise carried on business.

Application may be made using Companies House form DS01..


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