Business Recovery, two words that the majority of businesses do not want to hear or think about. Running a business involves making decisions some that you can control some you cannot. Circumstances can change and as a business ensuring you have a business recovery strategy in place is important.
Business recovery covers a number of different areas including insolvency and liquidation. The owner of a business whatever the size has a legal obligation to ensure that the company is not operating in a state of insolvency. If your liabilities are beginning to outweigh your assets, and you are no longer able to pay your creditors then it’s time to act.
Recognising financial difficulty early on is crucial. The earlier you are able to identify problems within your organisation, the easier it will be to clarify your current position and explore the business recovery options available to you. Just as the name suggests, ‘recovery’ does not have to signify the end of a business.
It may be possible to rescue the company if action is taken early enough. Depending on the specific circumstances of the business, one of the following will likely be advised:
Company Voluntary Arrangement (CVA) – Where a repayment plan is agreed by your creditors and portion of your debt is written off, allowing you to continue trading.
Liquidation – Where a company ceases trading, all assets are sold in order to pay creditors and any liquidation fees and expenses. Remaining assets are then divided between shareholders.
Informal Arrangement – This is where a company agrees to a repayment plan with the creditors, absent of any third party involvement.
Administration Order – This is an insolvency procedure which protects a company from its creditors, enabling it to continue trading.
Administration is a powerful procedure which grants the company protection against demands from creditors until a solution can be found. The court will appoint licenced practitioners to take over responsibility of operations in an attempt to prevent further damage to the organisations finances.
It is essentially a procedure which buys time to address the shortfalls within the company. Keeping creditors at bay gives private investors a chance to resolve the situation and restore control to the directors.
Denial often plays a major role in the liquidation of a business, all too often financial difficulties are overlooked as a bad spell or pushed to one side. Seeking honest and confidential business recovery advice from professionals and communicating with stakeholders is vital, as it is far more likely to be received with sympathy and result in getting back on the right track.