If Your Company Has Debt Problems, Make Sure You Pick The Best Option To Deal With It

March 19, 2024 / News & General

If you are the director of a company which has debt problems, you are likely to be doing some research to try to find out the best way to deal with your situation. In doing so, you will come across a range of possible options for you to take.

Not all the options you come across will provide you with a good, long-term solution to your company’s debt problems. Some of the options do look like they are a really cheap way of dealing with your situation. However, please be careful.

You want to take the best possible option for your particular situation. You should be aiming to deal with your company’s debt problems once and for all. This means that you can put the problem behind you and move on with a fresh, new start.

The best option is to deal with a well-established, regulated firm; and to use a solution that deals with your debts and addresses all your legal obligations as the director of an insolvent company.

Clarke Bell are licensed insolvency practitioners, regulated by the ICAEW. We have been trading since 1994, and have helped more than 4,500 directors put their company through the liquidation process; and we score 4.5/5 on Google Reviews.

All this means that we are in a great position to be able to help you determine the best option that is available to you and your company.

The options you are likely to see in your research

Though they may share some similarities, no two companies are the same. This means that, when the time comes to close up shop or troubleshoot certain issues, the right method for one company may be of little use to another. Thankfully, there are a range of options available to directors considering liquidation and alternatives to doing so, some of which you may well have already encountered. The main options available to you at this time are:

  1. Do nothing
  2. Borrow more money
  3. Try to dissolve your insolvent company
  4. Sell your insolvent company
  5. Liquidate your company, using a licensed insolvency practitioner

Below, we will look at each of these options and give our advice on the merits (and otherwise) of them.

Do nothing

For many people, this is a popular option. Do nothing, and hope the problems will go away. This can be a perfectly fine option for directors who are merely unsure of what their company’s future ought to be, rather than those facing problems of any significance. However, this is not likely to be a solid option for any director putting any consideration into liquidation.

In our experience, this does not work when a company owes money to people and companies. The people who are owed the money (the creditors) will want their money back. If you choose to not pay them, they have a number of options they can take to get paid – ranging from contacting you regularly, to getting bailiffs appointed to seize assets equivalent to what they are owed.

So, while the “do nothing” approach might seem tempting and may even work for a short time, the downsides do not make this a good option. You will always be waiting for your creditors to take action. This causes most directors a lot of stress and sleepless nights for months and months – until creditors decide to pull the rug. It does not go away and eventually is likely to lead to a winding up order – which adds a whole new level of problems for you, none of which you will be adequately prepared to handle.

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Borrow more money

Borrowing more money can be a good option if your business is going through a temporary cash flow problem which an injection of money will definitely sort out.

However, all too often, we speak to directors who had put more money into their business, only to see it swallowed up with the rest of the company’s debts. Their situation was not resolved, but made worse. It is often the case that the only people who were prepared to lend any money to the struggling business were part of the director’s family. So, the problems became significantly worse and more stressful, on a business and personal level.

Try to dissolve your insolvent company

Dissolution can be a viable alternative to liquidation, but only for solvent companies. Smaller solvent companies especially may make use of dissolution, given the procedure’s unparalleled cost-efficiency. However, you are not allowed to dissolve a company that still owes any money. Some directors are tempted to give this option a try. However, it comes back to haunt them.

We have dealt with directors who took this approach, only to hear from their creditors who had seen what they were trying to do. This caused them a lot more problems than had they just closed down their company in the right way. Creditors will lodge an objection to the attempted dissolution, have it overturned, and submit a winding-up petition in response. This petition is likely to be accepted and, given the actions of directors, it is likely to result in serious penalties, including fines, disqualification of a directors’ license, and personal liability for company debt.

You might wonder who will notice if you dissolve a company when it is insolvent? The answer is HMRC and banks. Having discovered what you have done, they will object to the dissolution. Even if the company is successfully dissolved, it is likely that the company will be re–instated, allowing creditors to recover what they are owed. In addition to this problem for you, the Insolvency Service investigates wrongful dissolutions. This can lead to problems coming at you from all angles.

Sell your insolvent company

There are firms who offer to buy insolvent companies from directors. This sounds like a great alternative to liquidation, one almost too good to be true. You have a company that is saddled with debts, and someone wants to pay you money for it…wow!

The question is, why would someone want to do that?

You need to look very carefully at what this option will actually do for you – in both the short-term and the long-term. From what we have seen, some firms offering this service are giving misleading and bad advice.

The dangers are that:

  • old companies with losses could be of value for people who are looking to use them for tax evasion
  • you are paying a fee for the firm’s “administration time”. They simply let the company be struck off by not filing accounts or annual returns.

It is important to be aware that past directors remain liable for wrong-doings. So, the actions of some of these firms is at best an abuse of Companies House; at worst they could involve you in criminal activity.

Our advice is that you should tread very carefully. You do not want to get caught up in some investigation into fraud, on top of any difficulty you may already be dealing with.

The directors who we deal with feel much more comfortable in dealing with a firm that is regulated, has been trading for many years and can provide a solution that deals with the company debts and all their legal responsibilities. Our clients want to deal with the problem in a way that will enable them to put it behind them, move on with their lives and sleep well at night.

Liquidate your company, using a licensed insolvency practitioner

In the event a company can no longer repay its debts and other liabilities, it is considered insolvent. Directors of such companies must carefully consider their next steps, and assess whether recovery is possible. If not, directors may need to consider insolvency procedures.

Creditors’ Voluntary Liquidation (CVL) is one such procedure. It is a form of voluntary liquidation, one that specialises in addressing the needs of insolvent companies. By appointing a licensed insolvency practitioner, directors can use a CVL to reach an effective solution to their company’s debt, ensuring the issue does not spiral further.

The primary aims of a CVL are:

  • winding-up of a company
  • repayment of its creditors, as far as possible
  • fulfilling the legal obligations of the company’s directors.

In your research, you may get the impression that liquidating a company is a very costly way of dealing with your situation. However, there are a lot of insolvency practitioners and a wide range of prices for a CVL.

Clarke Bell’s fees are affordable, with most CVLs costing around £3,000.

We can charge low fees because we have low overheads and very efficient staff and systems.

So, if you are thinking that you want to liquidate your company, but that you wouldn’t be able to afford it, then give us a call.

If your company has debt problems, carefully consider all your options

We know there is a lot to consider when you are the director of a company which is struggling because of its business debts. You want to make the best decision but, since your funds are very limited, you are tempted to do nothing or take the cheapest option.

However, the solution you need to take is the one that will put the problems behind you. You want to be able to move on, with a fresh start.

In our experience, liquidating a company that is insolvent is normally the best approach. (When it is not, we will tell you what the better option is.)

To discuss your company’s situation and find out the right option for you, give us a call on 0161 907 4044.

The advice you get is free and confidential.

So, before you make a decision, give Clarke Bell a call to make sure you are going to make the right decision.