By Mike Kienlen, Restructuring and Insolvency Partner, Armstrong Watson LLP

INSOLVENCY Service statistics show insolvencies hit 1,827 in July, 67 per cent higher than in 2021. These are very worrying times for some business owners, particularly in relation to the responsibility they feel to their workforce and the disastrous effect on staff livelihoods if their company goes into liquidation. The priority is to seek advice early in order to have as many options as possible to resolve viability problems. Seeking advice early from an experienced insolvency practitioner will help you work through your company’s problem areas.

What if my business is viable in the long term?

It may be that your business has a future but has short-term cash flow troubles. It is vital to address the problem early. It may be that additional working capital is required in the interim. Be honest with staff, and explain the situation and the solution you have arrived at to solve the problem. Hopefully, staff will respond positively to your proactive approach and support the business.

What if my business is viable but cannot survive because of accumulated debts? There are insolvency processes that effectively draw a line in the sand. The business may be able to continue to trade and pay its current liabilities. Additional amounts can be put aside to pay “old” creditors an amount in the pound in full and final settlement of these liabilities. This can be done via a Company Voluntary Arrangement (CVA).

I do not think that my business can survive but it does have an underlying value In these circumstances, a company Administration may be the solution. All or part of the business can be sold, providing funds to pay creditors and saving your employees’ jobs moving forward. This formal insolvency process, overseen by a Licensed Insolvency Practitioner (“IP”), is often used to facilitate rescue of some or all of the business. It also gives the business time to maximise asset realisations.

What if the business has no future?

It is important to get the best advice in these circumstances. For example, if a company is allowed to continue to trade and, as a result, the value of outstanding wages and creditors increases, then legal action can be taken against the directors and they can potentially be made personally liable for the losses incurred.

If a company cannot cover its payroll costs then this may just be the tip of the iceberg and a Creditors Voluntary Liquidation (CVL) may be the best solution. Here the company ceases to trade, its assets are realised and, if possible, a distribution is made to creditors. Unfortunately, employees will lose their jobs but are legally able to claim holiday pay, redundancy pay, any unpaid wages and payment in lieu of notice period (limits apply) from the Government.

For more, phone Mike Kienlen on 0808 144 5575 or email