My Company is Going Bankrupt: What Are My Options?

Bankruptcy can be a daunting experience for any company director. The fear of losing control, the potential for personal liability, and the uncertainty about the future can be overwhelming.

But what if there were alternatives and options to help you navigate this challenging time?

This blog post aims to shed light on the different avenues available to limited companies facing financial distress and provide guidance on how to make informed decisions during such critical times.

We’ll discuss spotting bankruptcy warning signs, consulting insolvency experts, and considering options like CVAs, alternative financing, and restructuring.

By the end of this post, you will have a better understanding of the potential choices you have when facing bankruptcy, empowering you to make the best decision for your company and its stakeholders.

The Role of Insolvency Practitioners

Insolvency practitioners (IPs) play a vital role in providing advice and support to companies and individuals experiencing insolvency.

They are authorised and licensed to act on behalf of insolvent persons, partnerships, and organisations.

Consulting a licensed insolvency practitioner is essential for a limited company experiencing financial hardship as they can advise on the most suitable approach to take.

An insolvency practitioner assesses whether the company can continue trading, be sold, or if it needs to be liquidated.

They are responsible for negotiating with creditors and administering the insolvent companies and estates to secure the most favourable outcome for all parties involved.

By seeking professional advice from an IP, you can make informed decisions about your company’s future and explore options to avoid bankruptcy or liquidation.

Company Voluntary Arrangement (CVA)

A Company Voluntary Arrangement (CVA) is a way to settle the debts of a business. It is a formal agreement legally binding agreement between the company and its creditors, that sets a timeline to clear all debt.

A CVA is a binding contract for all parties involved, including creditors, and provides reduced monthly payments for the company while eliminating the risk of legal action during its active period.

This arrangement allows the company to reorganise its finances without interrupting operations.

Creditors can benefit from a CVA, as they receive payments towards their debt over a longer period.

This is more feasible than having to pay the total debt in one go. To assemble a CVA proposal, a minimum amount of £5,000 in eligible debt is required.

By implementing a CVA, your company can continue trading while working towards repaying its debts, offering a lifeline for those facing potential bankruptcy.

Alternative Financing Options

For companies in insolvency, alternative financing options such as invoice finance, factoring, or invoice discounting can provide much-needed capital.

These options can help companies avoid bankruptcy by securing quick access to the necessary funds required to keep business operations running smoothly.

Invoice finance and factoring involve selling outstanding invoices to a third party at a discounted rate, providing immediate access to cash that would otherwise be tied up in unpaid invoices.

Invoice discounting, on the other hand, allows companies to borrow money based on the value of their outstanding invoices, with the invoice acting as collateral for the loan.

By exploring alternative financing options, companies can bridge cash flow gaps and mitigate financial difficulties.

Restructuring Your Limited Company

Restructuring a limited company involves making modifications to the company’s operational, financial, legal, or other structures to enhance its financial standing, maximise profit, and ensure efficient functioning.

This process typically involves selling assets or reducing staffing levels to improve financial performance.

However, it is important to note that restructuring a limited company has long-term implications and may result in redundancies.

By carefully analysing the company’s current situation and strategically planning for restructuring, you can make the necessary changes to boost financial performance and avoid bankruptcy.

However, it is essential to weigh the benefits of restructuring against the potential negative impacts on the company and its employees before making any final decisions.

Company Administration

Company administration is a process that provides an eight-week period of evaluation to assess financial concerns and determine corrective actions to ensure employee security and stability.

During this time, all legal action against the company’s directors is suspended, giving the business a chance to regroup and plan for the future without the constant pressure from creditors.

There are several potential exits from a company bankruptcy administration, such as a Company Voluntary Arrangement (CVA) and company liquidation.

By entering company administration, businesses can gain valuable time and protection from creditor pressure, allowing them to explore all available options and make informed decisions about the future of the company.

Creditors’ Voluntary Liquidation (CVL)

Creditors’ Voluntary Liquidation (CVL) is a process that entails the closure of the company after the sale of all its assets.

Creditors are reimbursed to the greatest extent possible, with any remaining debts officially discharged by the liquidator.

Opting for CVL can provide directors with the potential to receive redundancy pay, which can be used to cover the process, clear the company’s debts, or provide financial support during the loss of the company.

Voluntary liquidation should be considered when the company cannot be sold, as it provides an opportunity to plan for obligations including personal guarantees, redundancies, and lease terminations.

The Creditors’ Voluntary Liquidation (CVL) process to close an insolvent company often starts from £5,000. This cost can vary depending on the complexity of the case.

Seeking Professional Guidance

When a limited company goes bankrupt or enters insolvency, obtaining professional advice from a qualified insolvency practitioner (IP) is essential.

These experts are mandated to oversee all authorised company insolvency proceedings and can provide a reliable assessment of your company’s current situation.

Before consulting an IP, it is crucial to gather accurate financial documents that depict the company’s financial condition.

This information will help the insolvency practitioner determine the most appropriate course of action for your business.

Recognising the Signs of Bankruptcy

Recognising the early signs of bankruptcy is crucial to helping your company weather the storm.

Some indicators include cash flow difficulties, unpaid bills, and creditors taking legal action.

It is essential to understand that bankruptcy refers to individuals who are unable to pay their bills, while insolvency is the term used for businesses that cannot meet their financial obligations.

When a company goes bankrupt, its assets will be liquidated to fulfil creditors’ obligations, and any remaining debts will typically not be retrievable.

To avoid liquidation, securing funding to support cash flow may be an option, but there are other official procedures that can be taken to save your company from bankruptcy.

Failing to act in the best interests of creditors while managing an insolvent business can result in personal liability for the company’s debts and a potential ban from serving as a company director for up to 15 years.

To avoid such consequences, it is crucial to be proactive in seeking help to understand the available courses of action for your business, whether that involves rescuing the business or opting to close it down.

The first step is to always seek advice and professional guidance from an insolvency practitioner.

Directors’ Personal Liability

Directors may incur personal liability for company debts if they engage in wrongful trading, fraud, or fail to fulfil their duty of care.

Under normal circumstances, directors are not personally liable for a limited company’s debts.

However, if a director provided an insolvent limited company with a personal guarantee or took out a loan, they might be held personally liable for the company’s debts.

This can lead to significant financial and legal repercussions for the director, including fines, disqualification, and imprisonment.

To avoid such consequences, it is crucial for company directors to act responsibly and in the best interests of the company and its creditors, especially when facing bankruptcy or insolvency.

Dissolution or Strike Off

Dissolution or strike-off is the process of removing a limited company from the Companies House register.

The strike-off process provides a shield from third parties gaining intrusive access to the business operations and personal affairs of you or any other directors. It is a great way to protect all involved.

Furthermore, a strike-off performed correctly will not have any long-term negative impact on you as a director.

The cost of striking off a solvent company that is no longer trading and has few assets is £10.

While this option may not be suitable for all companies, especially those facing insolvency, it can be a cost-effective and efficient way to close a limited company that has ceased trading and fulfilled its obligations to creditors.

Summary

In conclusion, facing bankruptcy can be a challenging and overwhelming experience for company directors.

Recognizing early bankruptcy signs, consulting insolvency experts, and exploring options like CVAs, alternative financing, and restructuring can help protect personal and professional interests.

Remember, knowledge is power, and understanding the options available to you when facing bankruptcy is the first step toward regaining control of your company’s financial future.

Armed with this information, you can now face any financial challenges with confidence and determination, knowing that you have the tools and resources to navigate the storm and emerge stronger on the other side.

Frequently Asked Questions

What happens to my options if a company goes bankrupt?

If a company goes bankrupt, your options will likely become worthless.

Unless the stock continues to trade or is taken over by another bankrupt company, you could lose your investment as most of the value in bankruptcy is given to creditors rather than stockholders.

It is therefore wise to exercise caution when investing in options of companies that are struggling financially.

Do you lose your money if a company goes bankrupt?

Unfortunately, if a company goes bankrupt and does not have enough assets to cover its liabilities, you may not get all your money back.

Even in a Chapter 11 bankruptcy situation, there is no guarantee that you will receive any of the money owed to you by the company.

Can I lose my house if my limited company goes bust?

Although it is possible to lose your home when your Limited company goes bust, such an outcome is relatively rare unless there is evidence of misconduct or a personal guarantee has been given.

What do shareholders get when a company goes bankrupt?

When a company goes bankrupt, shareholders may not receive any value from the assets and will usually be unable to sell their shares.

They may receive a small payment out of the proceeds of the bankruptcy proceedings, but this is often limited or non-existent.

In most cases, shareholders will suffer a significant loss in their investments.

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