Running a company can be stressful at the best of times. But if your business is undergoing financial difficulty and creditors are waiting to be paid, business insolvency can be an incredibly testing time. However, the sooner you act, the more options you will have available to you - which means you can ensure the best possible outcome for you and your business. At McAlister & Co, we offer a range of financial support services for businesses dealing with financial difficulty - so read on for our top tips for directors of businesses facing insolvency…1. Get professional advice
If your business is facing insolvency, it’s really important to seek expert advice as soon as possible. Knowing when to cease trading can be difficult - for starters, it’s a fine line between financial difficulty and insolvency. Perhaps you want to trade yourself out of insolvency or don’t want to let your staff down so think you should just keep plodding on and hope for the best. Whatever your situation, one thing’s for sure: the sooner you seek advice, the better. An expert insolvency practitioner will be able to offer financial support services, provide advice and guidance to ensure the best possible outcome and also ensure you act lawfully to avoid any wrongful trading accusations. So if you’re facing financial difficulty, it’s essential that you seek expert help as soon as possible.2. Put your creditors’ needs first
When facing business insolvency, above all, you must place your creditors’ interests before those of the company. Such a shift in focus is necessary to avoid personal liability for company debts as well as potential accusations of unlawful trading. It’s a legal requirement for company liquidators to report on the conduct of the company directors, so if you are facing liquidation, it’s imperative that your creditors’ interests remain at the forefront of your mind. Minimising creditor losses should be your ultimate aim, so make sure you engage with them openly and honestly. Not only will this help to gain their trust, but it will also keep the lines of communication open so you can ensure you reach the best possible solution for everyone involved.3. Keep clear financial records
Whilst it’s always important to keep clear financial records, it is even more vital in times of financial difficulty. For starters, if a clear route into insolvency can be seen from your financial records, it may well help to shorten the duration of potential investigations. In addition, having detailed and accurate financial records will make your insolvency practitioner’s life easier too, helping to smooth out a potentially difficult process and reach a solution as soon as possible. Closely monitoring your financial position will also show your creditors that you are committed to dealing with the issues at hand. Make sure you keep a written note of all discussions too, so you can clearly record why decisions are being made and show the steps you are taking to try and recover the situation.
4. Don’t incur further credit
Whilst you might be tempted to incur further credit in a bid to trade yourself out of financial difficulty, it is never a good idea. Incurring more credit will only make things worse: it will weaken your position, portray you negatively in front of your creditors and you could be viewed as acting in an improper manner. When facing insolvency, you instead need to focus on reducing your expenditure, showing your creditors that you are taking control of the situation and putting their needs first. If you do want to continue trading, always contact an insolvency practitioner for expert advice so that you can find a lawful solution that works for all parties.5. Set out a recovery plan
Despite all of this, remember that facing insolvency doesn’t have to mean the end. In fact, if your company has a viable future, it’s important to make a recovery plan as soon as possible so you are completely clear on the next steps that need to be taken. Your plan should accurately reflect the standing of the company and cover legal issues such as tax savings, as well as identifying the most important areas of your business, such as what is needed to keep your company running, your basic operating budget and the minimum financing needed, as well as an action plan should disaster strike. A business recovery plan essentially gives you a chance to start again, change management strategies, approach problems from a new angle, or just generally refresh the business and renew interest.6. Protect your assets
When facing business insolvency, the value of your company assets must always be protected, so it’s important to make sure they are secure. Directors who try to sell or dispose of company assets could face allegations of misconduct - and this includes moving assets into another company or giving them to creditors as a form of payment. Whilst it may be tempting to sell your assets as quickly as possible to pay your creditors, if it is found that your company assets were sold at undervalue or transferred without consideration to their overall value, the transaction might be set aside. The directors would also be personally liable for any losses incurred. If you do decide to sell your assets, make sure they are valued professionally and ensure you don't sell undervalue by seeking advice from an insolvency practitioner.7. Never put your own money in
Finally, however tempting it may be, never put your own money into a company in an attempt to try and save it. A company’s limited liability structure is there to protect you and means that your business is a separate legal entity with no liability implied for you as a director - so it’s important to keep business and personal finances separate.
Make sure you act now
When it comes to business insolvency, it’s really important to seek expert advice from insolvency practitioners as early as possible. The longer you ignore any financial difficulties, the worse things will become. At McAlister & Co, we are Licensed Insolvency Practitioners who provide advice on business insolvency to Directors, Sole Traders and Partnerships. We offer a range of financial support services, from obtaining a valuation of your business assets and dealing with your creditors to protecting your home and personal assets, our dedicated team will help take the stress out of this complicated time. There’s no need to face financial difficulty alone - call us now for FREE initial advice.