If your company is struggling financially, the best time to seek advice is as soon as you find out. By taking insolvency advice from a licensed and regulated insolvency practitioner (IP), you’re acting in the company’s and its creditors’ best interests. Failing to act in a timely manner means you risk worsening the company’s insolvent position, and means you’re putting yourself at greater risk of facing further consequences once the company has to liquidate.
Will I face any consequences for speaking to an insolvency practitioner?
Contrary to some directors’ worries, speaking to an IP won’t, in itself, lead to you being banned or blacklisted from being a director in the future. IPs won’t report you to any regulatory bodies if you’re simply asking for advice. If your company is insolvent, seeking advice from a licensed and regulated professional is the best thing you can do.
The only time an IP may initiate further action is if, during an insolvency process, such as liquidation, they find you’ve acted outside of the company’s best interests or committed acts such as wrongful or fraudulent trading.
If the company’s finances deteriorate
As a company director, you should always be aware of your company’s financial position, including whether it is solvent or insolvent.
Staying up to date with your company’s balance sheet and cash flow, and testing whether the company can repay its liabilities when they fall due or if its assets outweigh its liabilities, can help you spot any potential signs of insolvency before they become too large a problem to manage.
Once you’re aware of any potential signs of insolvency, you should speak to a licensed IP, who can provide free, impartial advice and put your company on the right track.
If informal arrangements fail
Depending on the type of debt your company is facing, it might be possible to enter an informal arrangement to repay them. Some debts to HM Revenue and Customs (HMRC) could be repaid in this way through a Time to Pay Arrangement (TTP).
However, if the debts aren’t suitable for or wouldn’t be covered by informal repayment arrangements, taking insolvency advice will give you a better understanding of what can be done to alleviate the issues and help you decide how to proceed.
Creditor pressure is increasing, and the company can’t pay its debts
Creditors can send reminders and notifications for you to repay what you owe them. Receiving these repayment reminders isn’t always indicative of insolvency, but if you’re unable to repay those liabilities when they fall due, the creditors can ramp up the pressure and increase their attempts to recover the owed amount.
Escalating from reminders, your creditors could issue Statutory Demands and even County Court Judgments (CCJs). The latter can have longer-lasting effects if left unsatisfied within the time specified in the judgment. The CCJ will stay on the company’s credit file for six years, making it harder to take out credit in the future.
If these formal demands are ignored, your creditors could send debt collectors and even bailiffs to recover monies or items equivalent to the amount of debt. At worst, they could issue a winding-up petition and force the company to close through compulsory liquidation.
Summary
You should take advice from a licensed and regulated insolvency practitioner as soon as you become aware of your company’s financial problems. Taking advice won’t immediately blacklist you from being a director or get you into any trouble with regulators, and doing so puts you in a better position to achieve the best outcome for your company and its creditors. Failing to act decisively means your creditors can take further action to recover what your company owes them and could even see it forced into compulsory liquidation.