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Written by:

John A Waller

Director

Published: May 3rd 2021

My business is unable to pay its bills

My business is unable to pay its bills as and when they fall due. A common problem for many companies, especially those who have a turnover below £500,000, suffers from various financial issues, especially during the coronavirus covid19 pandemic.

When a business can’t pay its creditors, problems start, essential suppliers stop supplying, hence impacting your business’ cash flow further. However, all is not lost. A licensed Insolvency Practitioner can keep your business on track. Directors can avoid closure and still retain control of managing their business with a Company Voluntary Arrangement (CVA).

Evaluate your business circumstances

Review your business and its finances.

If you answer ‘yes’ to any of the following scenarios for your business, please contact HBG Advisory for immediate guidance:

Is fighting with business cash flow temporary? If not, are you therefore insolvent and require a creditor voluntary liquidation, as the business is no longer financially viable?

Seeking help and support from a licensed Insolvency Practitioner therefore protects both you and your business while protecting your business creditors—an essential consideration as part of your director’s duties.

My business is unable to pay its bills due to temporary cash flow difficulties

There may be some bills that you can postpone, giving you breathing space. If you explain your situation to your creditors (i.e. the people you owe the money), they might understand if you have a good relationship with them. You may also work together to establish a workable payment plan.

Note though, company directors must watch how creditors react and how you also react. Often, creditors react aggressively and fear your business may fail, leaving them out-of-pocket. If your creditors seek legal advice on obtaining payments, they may proceed via the courts or even apply to wind you up. Many choose a form of leverage, particularly if the creditor believes some wrongful trading has happened. This is allowed to allow compulsory liquidation, and the official receiver appointed to act as temporary liquidator, and investigate the company and how directors managed it.

Therefore, contact the team at HBG Advisory for advice on the contact details as below.

Consequences of ignoring your temporary cash flow issues?

If you ignore your company cash flow problems hoping they solve themselves, you will likely be disappointed, and hence get into a more complex situation.

Your creditors are likely to stop providing their services quickly. Depending on what goods or services they provide, your business will determine how detrimental this will be for your business.

Annoyed company creditors may however decide to petition the court to commence to wind up your limited company to recover money owed. Therefore, this could result in your business winding up and compulsory liquidated. Avoiding this will stop the following:

  • Any credit term needed in the future is affected. 
  • You and your business will be considered unreliable and untrustworthy;

Compulsory liquidation and avoiding one.

To avoid compulsory liquidation of your company. Directors must seek support from a licensed insolvency practitioner to propose an arrangement with their creditors to avoid closure. The procedure is known as a ‘Company Voluntary Arrangement‘ (CVA).

Subject to having a viable company moving forward.

A CVA maintains the ongoing trade of your business while repaying the creditors of the company. Usually, payments made monthly once agreed upon by the creditors. Sometimes creditors agree to write off a proportion of the outstanding debt, believing it is better to receive something than nothing, as is often the case in liquidation.

If your problems are not temporary

Suppose you believe the situation isn’t merely temporary, and that you will not catch up with your business debts and bills. Therefore, your most suitable option remains a Creditors’ Voluntary Liquidation (CVL).

Directors of the company can recommend a CVL if:

  • Once established, the business can’t pay its debts as and when due. Therefore, it is insolvent on a cash flow basis.
  • Therefore, shareholders of the limited company (the business) need to hold a meeting and agree and pass a ‘winding-up resolution for the company.

If a company goes into CVL, it will stop trading and liquidating – i.e. ‘wound up’ and closed.

All directors duties cease once the liquidator is appointed. Then allow you to move on with your life and not worry anymore about the company’s creditors.

Since the recent structural changes in UK corporate law in 2020 and the outbreak of the coronavirus COVOD19 pandemic, physical attendance meetings remain no longer. All forms of the process can either be online or phone, with forms of written communication, saving time, money and providing a safe way to handle the liquidation.

Note though, CVL is not always the best way forward for your limited company and its creditors. A Licensed Insolvency Practitioner will explore your available options.

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