The key is not to ignore the warning signs until your situation becomes a winding up petition. Seek professional advice at the first signs that your company is facing financial difficulty. A little information can go a long way to alleviating your stress and with proper advice you will be comfortable in the knowledge that you are making the right decisions and importantly, decisions that are more likely to bring the best outcomes for your business.
If you are a Sole Trader or Partnership and your company is struggling with debts of more than £5,000 then you should look at our personal insolvency section where there are solutions including a Debt Arrangement Scheme which can be applied to a business. Business DAS has allowed many Scottish businesses to survive a period of insolvency.
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How can I rescue my Scottish business?
Many businesses are forced into liquidation by their creditors each year in Scotland, with HMRC tax and VAT debts being the biggest cause. Often, these liquidations could have been avoided if directors had sought advice when cash flow problems started to show. The sooner you reach out for help the greater the chance you will have of saving your company or controlling how your company is closed.
The number of companies being forced into compulsory liquidation is very high in Scotland. This is partly due to how our insolvency processes work here compared to England. Once a court processes a petition to wind up your company from a creditor then everything happens very quickly. The court’s decision is posted publicly (walled) which in turn causes the banks to freeze your business bank account. This is crippling for almost all businesses as without access to your bank accounts and your assets being frozen from sale there is no way to generate any more income, pay wages or suppliers.
The key theme you will notice through this entire website is that you must seek advice as early as possible. There are many solutions to company debt problems but as time goes on those options lessen until there is nothing left but liquidation.
Get in touch with us. You can speak with a professional who is specialised in Scottish business insolvency procedures and will be able to advise you on which options are best for you. All advice is FREE and confidential. We do not store your information for any purposes other than contacting you regarding your inquiry.
What’s the difference between formal and informal solutions?
An informal solution does not offer you the same protection from creditors that formal procedures do. Any of your creditors would be free to change their mind with regards to the arrangement you have made and could once again begin legal actions against you. Alternatively, if you use a formal process then all parties are bound by the legal conditions of the agreement and are forbidden from any further legal actions unless you break the agreement.
Formal solutions for insolvent Scottish companies;
Company Voluntary Arrangement (CVA)
CVA’s are a common insolvency process which allows a struggling company to continue trading. A licensed Insolvency Practitioner is used, who arranges a formal agreement with creditors to repay the outstanding debts over a set period of time. This is essentially a corporate DPP (debt payment plan). Repayments are set at a level that is affordable to your company and an end date is established. The process has benefits for both company owners and creditors.
Creditors receive a greater return on their money than would be possible if the company was forced into liquidation. While owners receive extra time to pay, interest and charges frozen, protection from further legal action and the ability to keep running the business.
Read more about > Company Voluntary Arrangements
Administration is another well known and often well publicised insolvency procedure. Again it has the benefits for business owners of providing vital breathing space from creditor pressure by imposing a moratorium. This essentially stops any further legal actions by creditors whilst your company’s financial situation is examined by a licensed Insolvency Practitioner.
It can sometimes be appropriate to use Administration and a CVA. You would take your company into Administration and if enough money could not be generated to pay off the outstanding debts then you agree on a CVA with creditors as a way to cover the remainder. This way your company continues trading with light at the end of the tunnel in the form of a fixed end date on the payment plan.
There is also the option of entering Administration and using the Pre Pack process whereby you have the option to sell off (and buy back yourself, via a new company) the part of the business that is still viable. The unsuccessful parts are liquidated to cover as much as possible of your outstanding debts with the remainder being written off.
The Pre Pack Administration process is very useful for directors and shareholders who have invested considerable time and expense training skilled staff and building trading partners which they do not want to lose.
Read more about > Company Administration
Receivership’s are a rarely used form of insolvency process nowadays and traditionally were used by banks to take control of a company in order to recover money that was loaned with a ‘floating charge’. Replaced by Administration in 2003, please call us if you have any specific questions on this older style restructuring solution.
Read more about > Company Receivership
Further time to pay and HMRC in Scotland
Further time to pay actions are very useful especially when it comes to helping deal with HMRC tax and VAT debts. Many people assume HMRC is not receptive to payment plans since it consistently forces companies into liquidation each year. However, the opposite is actually true. HMRC simply does not mess around when it comes to closing your business down if it receives no communication and no money.
The best way to deal with HMRC is to be open and honest. Keep communicating with them and continue to make some contributions even though you are not able to meet the full amount and it will go a long way in demonstrating that your intentions are good.
HMRC is receptive to 3 and 6 monthly further time to pay arrangements and it is not impossible to negotiate a 12 month term.