Rescue routes for financially distressed companies

As Covid pushes many businesses to the brink, Julian Pitts of Fast Track CVA explains what options business owners have if they find themselves in financial trouble.

Stressed women at laptop


During the lifetime of a limited company, you may experience bumps along the road and temporary hurdles which may threaten the smooth running of your business. It is natural for profits to fluctuate during the year due to peak and off-peak trading seasons, the introduction of new trends and economic conditions. As your business grows year-on-year and recognises recurring annual trends, planning your finance and contingency plans around this can help brace your business for unexpected periods of slow trading or unplanned breaks from work.

If your business is experiencing long-term financial difficulty which is hindering the growth potential of your limited company, acting earlier rather than later could help reduce the likelihood of your business further deteriorating. Restrictions to cash flow, creditor pressure and impending legal action can push your business into decline and interrupt service delivery due to cash flow restrictions and deter suppliers. If your business requires more than time to recover, seek advice from a specialist business restructuring provider to secure long-term success. There are some company restructuring routes available, however, the solution suitable to you will vary based on several factors, such as company assets, debt level and the intended end goal.

Company Voluntary Arrangement (CVA) – A Company Voluntary Arrangement is a formal procedure for financially distressed businesses with a viable future to restructure liabilities by entering a payment plan. A CVA enables you to combine outstanding creditor payments into single monthly instalments lasting three to five years. Your business can only enter this process following agreement from 75% of creditors in value. This route protects against legal action from creditors, helping you improve cash flow and withstand economic pressures, such as the long-lasting impact of the coronavirus (Covid-19) pandemic. If your business is urgently in need of support, you may be able to compress the company voluntary arrangement process into just six weeks.

Company Administration – This route transfers control of your business to a licensed insolvency practitioner intending to recover your insolvent business. Putting your company into administration can protect it against legal action and threats from creditors as the administrator will seek to rescue your business from cash shortfalls and overwhelming debt levels by realising asset value and distributing funds to creditors.

Commercial Finance and Covid-19 Support – To protect livelihoods, the Government announced a series of emergency financial support schemes for businesses adversely impacted by the pandemic. By accessing such funds to survive the pressures posed by the pandemic, you can reduce the likelihood of your business falling into decline.

Alternatively, if your business is need of a cash injection to fill the income gap between the period of services delivered and invoices yet to be paid, enforcing stricter credit control measures or accessing the likes of invoice finance can help get your business back on track.

*Julian Pitts is regional managing partner at Fast Track CVA, a company restructuring firm providing business recovery support to financially distressed company directors, including fast-track company voluntary arrangement processes.

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