Overview: Restructuring Options to Help Distressed Businesses

If your business is failing, whether this is at a slow or speedy pace, it becomes vital to act fast to avoid further damage or even complete breakdown. As with businesses of any size, including MSMEs, each area should be carefully analyzed daily to ensure that it operates effectively and fulfills the desired output. In addition, if your business/startup is facing financial crunches, it is time to take a pause and review your strategy before running into further debt.

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The first step to identifying if a business is in terrible financial difficulty is to check and analyze a balance sheet and cash flow test for insolvency to assess the feeblest points of the business. Suppose your company has some loopholes/wrong figures in the balance sheet and poor cash flow due to weak credit control measures and high-value liabilities. In that case, you will need to reconsider your business strategy. There are many Restructuring Options to Help Distressed Businesses which can help revitalize the business, writes Keith Tully of Real Business Rescue.

Before we dive into the detailed information, let’s understand.

What is Company Restructuring?

Company Restructuring is a process where a company under critical financial pressure plans to develop and implement a restructuring plan to improve its financial position/condition to allow the business to continue or, we can say, get some space for survival. It will usually involve Startup business growth in the business operations and commonly works with some or all of a company’s creditors to vary terms of payments.

Depending on the seriousness of the company’s financial situation, a company can be implemented informally, behind the scenes, or formally, using one of several legal restructuring processes such as Small Business Restructuring and Voluntary Administration.

Let’s Begin.

Company administration

If your business is bankrupt, for instance, unable to fulfill the primary liabilities and expenses, experiencing additional creditor pressure, and minimum cash flow, business administration is a route that pauses creditor pressure and helps you avoid liquidation, which, notably, marks the demise of your business. Business administration is a life-saving/rescue method in which a licensed insolvency practitioner will control business affairs. They will be responsible for realizing assets and repaying creditors, injecting new life into your company/business.

Time to Recompense Arrangement

A Time to Pay (TTP) arrangement is a formal request to HMRC to reorganize your tax liabilities, such as VAT, PAYE, and Corporation Tax, generally for over one year. However, if your business is in severe financial crunches, HMRC may consider a longer-term.

Suppose you fail to make payments to HMRC. In that case, the internal system could flag/blacklist your business up as in financial difficulty, making a TTP an appropriate solution to put in place before falling behind with payments. HMRC will assess your ability to make repayments through a Time to Pay arrangement and make their decision based on affordability.

Company voluntary arrangement (CVA)

A Company Voluntary Arrangement (CVA) is a liquidation procedure carried out by a licensed insolvency practitioner which enables you to restructure your debts into reasonable installments, subject to mutual agreement from creditors. A CVA is a payment plan over a fixed term, generally 2-5 years; however, to qualify for one must be legally bound by the payment arrangement, 75% of creditors should approve/agree with the proposal.

During the Company Voluntary Arrangement (CVA), the business will be protected against legal action from creditors, making this way the best possible opportunity for creditors to generate a maximum return and, therefore, increasing the chances of agreement.

Financing and Funding Businesses

If your business requires an urgent/immediate cash injection to set it back on track, raising finance can crack the critical funds. Various commercial finance solutions can be personalized for the short-term and long-term, boosting cash flow to allow you to take on more custom, refill stock, and invest in the business.

Financial distress symptoms experienced by each business will vary, and no restructuring advice is universal due to the level of detail relating to liabilities, assets, and other mitigating factors. Wrongful trading means trading while knowingly insolvent, as if breached outside of the suspension period, you could be held personally liable for the losses of the business.

Karan Jain

Born in the family of entrepreneurs and have inherited the same. Started building applications in order to pay for my tuition. Later founded a tech company, marketing agency, and media outlets.