With the turbulence of recent years, thanks to economic instability and the coronavirus pandemic, you may have unaffordable company debts.
These debts could be the result of losing a high-paying client, or the withdrawal of coronavirus support has left the company unable to cover its liabilities.
Whatever the cause, if it’s a recurring problem, or the debts risk pushing your company into an insolvent state, then you need to act quickly and suitably.
Failing to do so could see your creditors force the company into compulsory liquidation.
Fortunately, there are avenues to relieve the debt and potentially, depending on your circumstances, save the company.
Can I Stop Creditor Pressure on My Company?
One of the worst parts of your company’s accounts being in the red is the pressure exerted on you by the creditors wanting their money back.
This creditor pressure can start as letters and telephone calls reminding you to repay your company’s debts. While it may be tempting to ignore these, doing so is ill-advised.
Ignored reminders can quickly escalate into County Court Judgements (CCJs) or statutory demands; the former can damage your credit rating if it’s not repaid within the specified time.
Continuing to ignore these court orders can even lead to High Court Enforcement Officers (HCEOs, or bailiffs) visiting your business premises, who’ll try to take goods equal to the value of the company’s debts.
While it’s unpleasant to be on the receiving end of creditor pressure, it’s perfectly legal for creditors to engage in. There are parameters for what’s appropriate, though.
Reminders should only come within work hours if the debt is company-related, and creditors shouldn’t use threatening language or allude to action they can’t legally enforce.
If these limitations are broken, the creditor could be guilty of harassment.
Can I Repay My Company’s Debts?
The good news is that finding you have unaffordable company debts doesn’t automatically mean it has to close.
If the business would be viable, were it not for the debts, you may be able to repay them in affordable instalments on a monthly basis.
You can do this through a Company Voluntary Arrangement (CVA), a legally binding agreement between the company and its creditors managed by a licensed insolvency practitioner.
The arrangement can include any of the company’s unsecured debts and usually lasts five years.
Any remaining unsecured debt is written off at the arrangement’s conclusion, leaving the company free to continue trading.
I Can’t Repay My Company’s Debts. What Else Can I Do?
If the company’s debts are of such a level that they can’t be repaid at a rate that would justify a repayment plan, or the company needs more substantial restructuring to become viable again, you may benefit more from an administration.
Again, administrations are managed by a licensed insolvency practitioner.
They take control of the company, giving it breathing space and relief from creditor pressure while making structural changes to return the company to a profitable state, making it appealing to potential buyers.
The Company’s Debts Are So Bad I Need to Close It
Sometimes a company can have so much debt that saving it isn’t possible.
In such circumstances, you would be better off closing the company through a voluntary liquidation before the creditors force it down the compulsory liquidation route.
The liquidation process for insolvent companies is called a Creditors Voluntary Liquidation (CVL), which results in the company’s closure, staff being made redundant, allowing them to claim redundancy pay, and the company’s debts being written off.
A CVL draws a line under the company’s insolvency and allows the directors to move on and start a new limited company should they wish to.
Finding out you have unaffordable company debts is seldom a pleasant experience and can lead to a whole host of other problems later.
Once creditors start chasing you to get their money back, an unfortunate situation can become downright unpleasant.
Fortunately, there are ways to alleviate the debt and nullify or reduce its effects in the future.
Depending on the volume of debt and whether the company has a solid structure that could be profitable were it not for those debts, you may be able to repay them in affordable, monthly instalments through a formal repayment arrangement.
Restructuring is also an option should the company require it, allowing changes that could return it to a profitable state.
Alternatively, if the unaffordable company debts are so severe that closure would be the best option, you can close the company via a voluntary liquidation before its creditors force it into compulsory liquidation.
Whatever you do, you shouldn’t hang about if you have unaffordable company debts. Take decisive action to alleviate them. The faster you act, the higher the chances of a positive result.