Recovery and Restructure
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Recovery solutions for companies
Company administration can be a very effective rescue solution for a struggling business.
As part of the process an insolvency practitioner is appointed, and will assume control of the company whilst it stays in administration.
A Time to Pay (TTP) arrangement with HMRC can make a big difference to a company’s cash flow difficulties.
It gives a company additional time and space to bring their tax arrears up to date.
A Company Voluntary Arrangement (CVA) is a legally binding agreement for a company to repay an agreed amount back to its creditors over a period of time (usually 3-5 years).
Depending on the circumstances, some debt may also be written off.
There’s a range of commercial finance options that may be suitable to improve cash flow problems.
These include invoice finance, asset-based lending, traditional business loans and commercial property funding.
The earlier you get advice, the better your options
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Find out if your company can be restructured or if insolvency is required.
Company Administration
What is administration?
If a company has serious cashflow problems, is insolvent and facing serious threats from creditors, the directors or secured lenders can appoint administrators through a court process to protect the company and their position as much as possible. This provides a moratorium and stops all legal actions.
The company is put under the control of an insolvency practitioner who will undertake the administration process and has three main objectives:
- Company rescue as a going concern. There is a distinction here of rescuing the company rather than rescuing the business undertaken by the company and it usually involves a company voluntary arrangement (CVA). You can see more information on a CVA here. The CVA would set out proposals for repayment of debts to secured, preferential and unsecured creditors. Once the CVA is approved by creditors, then the administration process comes to an end after 28 days.
- Improved outcome for creditors. This scenario means seeking to achieve a better outcome for the company’s creditors than would be the case if the company was to be wound up (put into liquidation). It is usually achieved by selling the business as a going concern to one or more buyers. The company and its debts are effectively left behind and the sale may include the transfer of employees, assets, goodwill, and intellectual property.
- Realising assets. This third objective can only be undertaken if the first two cannot be achieved and involves the selling of the assets of the company for the benefit of the creditors. Under this situation employees will be made redundant, and the business will cease to trade.
How long does the process last
As is often the case, timescales very much depend on the circumstances. There is a focus however on minimising timescales, as for example, the administrators must take on the employment contracts of the company after 14 days and so the emphasis is on selling the business out of administration before that date.
Another important point is that the administrator cannot allow the business to run at a loss which would worsen the creditors position. Depending on the complexity of the situation and the quantities of funds requiring collection then it may be necessary to continue trading for longer.
Coming out of administration
A company can exit administration in a number of ways depending on the long-term strategy for the business:
The business is sold
The business can be sold as a going concern on the open market, or a pre-pack administration (see more information here on pre-pack administration) can be undertaken if appropriate, which can be to a connected or unconnected third party.
If a pre-pack administration is undertaken then this would be arranged before administrators are formally appointed, which ensures minimal disruption to ongoing trade. Under these circumstances a new company would be formed, and the existing company would be liquidated.
A subsequent rescue and recovery process
It can sometimes be beneficial for the company to exit administration and immediately enter another formal insolvency process to maximise the opportunity for recovery. This could involve a Company Voluntary Arrangement (CVA) which is a legally binding agreement between the company and its creditors enabling lower monthly payments on existing debt thus helping cash flow.
Continue to trade
Once the business has been restructured, which would normally involve the refinancing of company debt, along with possibly renegotiating property and other lease agreements and a strategic reform of the company’s activities, the company should be on a sounder financial footing to start trading again.
Liquidation
It can sometimes be the case that once an objective evaluation of the company’s position has been undertaken, liquidation is actually required.
It can also be the case that liquidation was in fact the original objective and the administration process was necessary to protect the interests of creditors and maximise their return.
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Company Voluntary Arrangement (CVA)
What is a CVA?
A CVA is a legally binding agreement between your company and its creditors which allows a specified proportion of its debts to be paid back over time (usually between three and five years). It requires the agreement of 75% of the creditors by value, who voted, to support the proposal.
When is a CVA beneficial?
A CVA is most appropriate in circumstances where the business is viable but has significant cash flow problems which normally consists of large historical debts.
The CVA is effectively a formal payment plan which the company can afford over an agreed period and is acceptable to the company’s creditors. It can include writing off a proportion of the debt to ensure the company can afford the repayments.
Is your company likely to be eligible?
The main points to consider on whether your company is likely to be eligible or suitable are:
- Firstly, the company must be insolvent or at least contingently insolvent which also takes into account contingent liabilities (liabilities that may occur in the future).
- The Directors and the insolvency practitioner must be confident that the business is viable, and that the proposal will enable the business to recover and prosper.
- Financial projections must realistically show that the business can afford to make the agreed payments and on time.
The main benefits of a CVA
- A CVA is an effective way of rescuing a business to prevent it from entering insolvency and can mean a better return for creditors and a better outcome for the company.
- It improves cash flow and allows the Directors to concentrate on trading and improving the business’s performance.
- It stops pressure and recovery actions from creditors including HMRC.
- Company Directors and shareholders remain in control of the business throughout the CVA and there is no investigation of the Directors.
- A CVA can stop a winding up petition from closing the business (note that in order to be effective, the CVA will normally have to be proposed within seven days of the serving of the winding up petition).
- The process remains private and is not advertised publicly.
- A CVA costs less than other insolvency processes such as administration.
- If there are debts remaining at the end of the CVA, the CVA can be extended, or the debts may be written off.
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Time to Pay Arrangement with HMRC
What is a Time to Pay Arrangement with HMRC?
When most companies are experiencing cash flow problems, one of the first things that tends to get behind is the paying of taxes such as PAYE, VAT, and Corporation Tax. HMRC is the most common business creditor, and most insolvent companies will owe some form of debt to HMRC.
A Time to Pay Arrangement with HMRC is a debt repayment plan for a company’s overdue taxes. A company can request time to pay overdue taxes with HMRC, usually over a period of six to twelve months. Although, depending on your business circumstances and how much the business can afford, some arrangements can be agreed over longer periods of time.
What’s involved in requesting a Time to Pay Arrangement?
A formal request must be made to HMRC for a Time to Pay Arrangement and this involves a degree of interaction and negotiation, normally by phone followed by a written proposal.
As part of the process, HMRC will advise you of your rights and what the penalties may be if you don’t keep to the arrangement or falsify information in any way.
The written proposal would normally include cash flow projections, details of why you should be allowed time to pay and confirmation of affordability and commitment to adhere to the arrangement.
During the call HMRC will assess:
- The likelihood of repayments being successful.
- The longer term viability of the company.
- What the options would be if the planned repayments are not maintained.
It’s important not to offer to pay back more than you can afford.
Company Directors can negotiate directly with HMRC, however many find it beneficial to have an experienced third party undertake this on their behalf.
Our experienced advisors can handle this for you, and we will liaise with HMRC on your behalf using our expert knowledge to give you the best chance of securing a suitable arrangement.
Qualification for a Time to Pay Arrangement?
Formulating a strong and compelling case for why you should be granted a Time to Pay Arrangement is the most effective approach you can take, however HMRC will look at a range of aspects when considering your request such as:
- Your previous compliance with tax rules and regulations which would include filing taxes late and not paying on time.
- Your previous experience of Time to Pay Arrangements, if any.
- Specific risks associated with your type of business or particular industry.
Be sure about your next step
If you are experiencing cash flow problems and are behind in your HMRC payments for PAYE, VAT or Corporation Tax book your free consultation and speak with one of our specialist advisors.
Company Finance Options
If your business has been struggling with cash flow problems, there is a range of finance options that may be available depending on your circumstances.
Some of these options are secured against business assets which gives additional security to the lender and can help to reduce relative borrowing costs.
It’s important to look beyond the short term when considering your options and a consultation with one of our specialist advisors is recommended and it’s absolutely free.
Options to be considered:
- Invoice finance
Invoice finance enables a business to use its unpaid invoices as security for funding. This means that instead of waiting weeks or months to get paid, a percentage of the value of outstanding invoices (typically 80%-90%) is paid immediately.When your customer finally pays, the invoice finance company will provide you with the remaining value of the invoices, minus their fees for providing the service and funding.
The facility comes in two main forms, invoice discounting and invoice factoring, however, they both work on the same principle but differ in terms of the level of control over the sales ledger and the involvement of the finance provider in the collection process.
Invoice finance can be a great way of providing an element of stability and certainty to an uncertain cash flow situation.
- Asset finance
Asset finance is a term that covers two types of borrowing.One is the process of using a company’s balance sheet assets (such as investments or inventory) as a security to borrow money or take out a loan against what you already own. It can provide a secure and easy way of getting working capital for your business.
It is normally easier to obtain than traditional bank loans and the fixed repayment format makes budgeting and cash flow easier to manage. However you should be aware of the risk of losing important business assets if repayments are not maintained.
The other form of asset finance is where an asset is purchased, and the borrowing is secured against that asset such as in a hire purchase or lease agreement.
- Commercial property bridging loans
Bridging loans are a type of short-term property-backed finance, which are used by businesses who have an immediate requirement for temporary funds.The term of a bridging loan is normally short (typically between one and eighteen months), the interest is often included in the loan and the loan and interest can be agreed to be repaid at the end of the term.
The main advantages are that funds can be borrowed quickly and it facilitates larger borrowings whilst disadvantages include high interest rates and the risk of losing the secured property if payments are not maintained.
- Business loans
Commercial business loans work in a similar way to personal loans where a set amount is borrowed and is repaid along with interest on a monthly basis over a set agreed term. Depending on the financial circumstances of the business, security may be required by way of a charge over business assets or personal guarantees from Directors.
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