Navigating insolvency

Navigating Corporate Insolvency

Advice on restructuring, administration and liquidation: from Carolynn Best, Partner at Begbies Traynor Corporate Recovery and Professional Services

Running a business is not always smooth sailing. While there are often huge highs to ride, navigating challenging times is also part and parcel of being a company director. Sometimes these challenges are related to the company itself, such as changing consumer preferences, reduced customer demand, or new entrants to the market. Others are related to unavoidable macroenvironmental factors, such as political decisions, changing legislation, and the wider economic landscape.

Bad times, not a bad company

A company experiencing financial challenges does not necessarily mean it is a bad company. In fact, in many instances, periods of financial or operational distress can be successfully managed and ultimately overcome, with a company emerging on the other side stronger and more resilient in the face of future challenges.

History has shown us that it is businesses that possess the agility to pivot their offerings to accommodate the changing climate which thrive the most when wider macroenvironmental challenges present themselves. You need to ensure that a plan is put in place to weather current problems and is flexible enough to allow for unforeseen changes to be confronted head on.

The warning signs of insolvency

There is not a one-size-fitsall solution. What will be an appropriate solution for one company may be wholly unsuitable for another. A number of factors need to be considered: current financial position, ability to repay outstanding creditors, the likely viability of the company going forward, as well as the ongoing ambitions of the company’s shareholders and their desire to continue operating the business.

However, what all instances of company insolvency have in common is the need to seek swift, professional advice as soon as practically possible. Left alone, financial problems tend to escalate and a company can find itself going surprisingly quickly from merely noticing cash flow is squeezed to a state of being insolvent. Being alert to the warning signs of impending company insolvency puts you in the best possible position and allows you to seek swift advice at an early stage.

BEING ALERT TO THE WARNING SIGNS OF IMPENDING COMPANY INSOLVENCY PUTS YOU IN THE BEST POSSIBLE POSITION Five things you can do right now

◆ Be aware of the signs – the sooner you take action, the more options will be open to you to maximise your chances of saving the business ◆ Seek professional advice early – having a trusted advisor you can turn to during times of financial distress is key ◆ Keep up dialogue with creditors – they are more likely to be open to the idea of negotiating a payment plan if you are transparent about your situation ◆ Conduct an insolvency test – if your outgoings exceed your income or your liabilities outweigh your assets, you are classed as cash-flow or balancesheet insolvent respectively ◆ Understand your responsibilities – if your company enters liquidation, your conduct as director will become subject to investigation.