What Are Your Business Turnaround Options?

For any business, insolvency is likely to bring massive change. What type of change depends on the situation and the insolvency procedure that is most appropriate in each case.

Here are some of the options:

Administration A positive option for a failing medium or small business, administration is a constructive process that aims to rescue the company. SME business administration puts the company’s debts on hold, protecting its assets whilst providing breathing space to sort out the difficulties. During this time, an administrator takes over the financial management of the business and puts business turnaround measures into place. If it isn’t possible to save the business, bankruptcy is a last resort.

Administrative receivership If a business becomes insolvent and fails to keep to the terms of a secured loan, the lender may be entitled to call in an administrative receiver – a business insolvency practitioner who takes over the finances of the business. The administrative receiver is primarily concerned with recovering the money owed to the secured lender; he or she may sell some assets or the whole business to do this and to cover the costs of receivership. Administrative receivership is usually only available to lenders who hold a debenture on the business dated before 15th September 2003.

Read more about administration receivership.

Company Voluntary Arrangement This is an option for a business that has temporary cashflow problems, but can demonstrate that it will be able to trade successfully and repay its creditors over time. It is an arrangement negotiated with the company’s creditors, in which they agree to accept a reduced amount over a period up to five years as settlement of the debt. A Company Voluntary Arrangement enables the business to survive whilst the creditors receive some of what they are owed.

Read more about voluntary arranagements.

Compulsory liquidation This is when the court orders the winding up of company that cannot pay all its debts. The court may do this in response to a petition from a creditor who is owed £750 or more, or following a petition from the company, its directors or shareholders.

Read more about insolvency recovery.

Law of Property Act (LPA) receivership An LPA receiver is an insolvency practitioner or a chartered surveyor who is appointed by a lender to deal with payment defaults involving property. The LPA receiver will sell the property to repay the lender, or manage the property and collect rent, whichever is more likely to realise most value from the property.

Read more about law of property act receivership.

Members voluntary liquidation This is when shareholders decide to wind up a company that has sufficient assets to pay its debts in full. In other words, the business is solvent, but the shareholders wish to restructure the company or cease trading. The directors swear a Declaration of Solvency stating that the business is able to pay all its debts within 12 months and an insolvency practitioner carries out the liquidation.

Read more about members voluntary liquidation.

Pre-packaged administration (Pre-pack) A Pre-pack involves selling an insolvent business to a ‘phoenix’ company that has been set up by the existing directors before going into administration. This ‘pre-packaged sale’ means that the business continues with minimum interruption to customers and trade. The sale is completed by an Administrator to ensure that a fair price is achieved for the failed business. The aim of the Pre-pack is to save jobs and provide a better payout to creditors than would be achieved through ordinary liquidation.

Read more about pre pack administration.

Sole trader insolvency Individuals who become insolvent can be made bankrupt by a court, in which case an insolvency practitioner or the Official Receiver takes over the individual’s estate and sells their assets to pay creditors. Alternatively, a sole trader who becomes insolvent might reach an agreement with creditors through an Individual Voluntary Arrangement, which would enable them to carry on trading while making scheduled repayments.