Are your business debts getting out of hand?

Posted on January 13, 2017

It’s an unfortunate fact that January can be a hard time for struggling businesses. The double whammy of mounting bills and creditors delaying their payments on what’s due can cause huge stress for those involved.

But poor cash flow can cause an additional reason for concern: if you’ve not paid a number of bills recently, your business is at risk of insolvency.

If one of your creditors believes your company cannot meet its debts as they fall due, they might choose to apply to wind-up your company. Once the “winding-up” application is advertised, your bank will freeze your bank accounts, and, if the application is successful, a winding-up order will bring your company to an end.

At that point, if your bank account is frozen, you may require legal advice and assistance to obtain a validation order - this will ensure you can make essential payments to your suppliers and/or staff.

You can read more about the winding-up process here.

Don’t stick your head in the sand – take action

All might not be lost however – provided you take action swiftly. Read our tips for avoiding insolvency.

Tips for avoiding insolvency

Whether you are a company director or an individual/sole trader, do not ignore financial problems. Deal with them as they crop up.
If you cannot pay all or part of the sum due, contact your creditors and find out if there is any scope to delay payment.
Ask your creditors if they will accept payment of part of the debt or agree to you paying the debt over an agreed time period. Prepare a schedule of payments.
Chase your debts. Take all reasonable steps to recover all debts owing to you. Have a look at our Debt Recovery Service to find out about what action you can take.
Do not ignore demands for payment of your debts whether they come in letter form or by way of formal demand. Seek legal advice as soon as possible about how to deal with the demand.
Consider restructuring your business. This might take the form of closing down part of your operation and concentrating on the profitable elements. Or, you might need to reduce your staff.
Review your business plan. Prepare forecasts for your business – where will your future revenue come from?
Review your customer base? Do you rely on a few customers? (Is that wise?) Spread your business.
Aim to build up your cash reserves.
If appropriate, speak to your bank. If you are expecting payment of a large debt, tell them – and explain what steps you are taking to recover that debt.
Consider seeking advice from an insolvency practitioner to avoid personal liability.
Consider whether putting your limited company or limited liability partnership into administration is an option.

Contact

To discuss debt management, winding up proceedings, administration, debt recovery or restructuring, contact Christopher Burke on 0161 785 3500 or email enquiries@pearsonlegal.co.uk

Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.

This blog was posted some time ago and its contents may now be out of date. For the latest legal position relating to these issues, get in touch with the author - or make an enquiry now.