These are the ten things you need to know about business insolvency:
1. This is a real turning point in your life, treat it as such!
Make sure you have identified in your own mind, and with absolute clarity, what you want to achieve first and foremost, and why. Then identify what your next best solution is, and why. And then identify your third best. This will greatly help your decision-making. Why? because you’ll probably find you won’t be able to save everything you now ‘hold dear’.
Challenge yourself – do you really want to carry on in a similar business, or would you like a complete change? If you want to do the same or something similar, ask yourself what you are going to do differently, and how, this time around are you going to make sure it’s a success?
2. The business and the company are not the same thing
A formal insolvency process can be used to split out a viable business from its insolvent company shell, protecting the business yet ridding it of debts it can’t pay. This isn’t debt avoidance, it’s finding a practical solution to real life problems. But is has to be done properly. Recognise that the business and the company are two different things!
3. Smaller companies have fewer options and less time to act than bigger businesses
Those on whom smaller companies depend provide less support when things go badly. Your bank, rather than supporting you, will go into self protection mode. It’s up to you and your advisers to find a solution, and quickly.
4. There’s often nothing worthwhile saving in the smallest of companies
The informal way in which small companies tend to operate often means the goodwill in the business lies in the directors and key staff, rather than in the company itself. There’s less reasonfor you or an insolvency practitioner to spend time, money and effort to save the company. It’s this that often makes liquidation the most appropriate route for small companies.
5. All formal insolvency procedures damage the business
Some just do more damage than others. You’ll need to know how the different informal and formal solutions effect your business. Don’t listen to bland assurances made by any insolvency practitioner or anyone else that the insolvency won’t have any repercussions on the business, because it will!
6. Cost is a big issue in choosing any insolvency process
Every formal insolvency process is expensive, some more so than others. Cost is, in relative terms, a far bigger issue for smaller companies. This can mean, for example, that the cost of an administration of a small company can outweigh any benefits gained: a sale of the business and assets followed by a liquidation could be a less expensive option.
7. Not all insolvency procedures are the same
Each procedure has its own nuances, from the outside they seem subtle but they’re not. It’s vital that the right procedure is chosen, and that can be determined by what may to you seem to be small factors. It’s important to consider all the options.
8. You’re not obliged to spend your own money to pay the insolvency practitioner’s fees
If there’s not enough money or assets in the company to pay for the insolvency process, there are alternatives. Couldn’t your money be better spent, say, to finance your new business?
9. Once the company goes into formal insolvency, you lose all control
The insolvency practitioner makes the decisions. It’s important you know his intended strategy, right from the planning stage.
10. Liquidation doesn’t stop you earning a living
In the UK responsible entrepreneurs are encouraged to give it another go – indeed many of today’s most successful businessmen weren’t a success first, second, third, even fourth time around. However, setting up a phoenix operation isn’t always that easy as the banks, customers and suppliers are not always as supportive as you’d like or expect. An added complication is that the rules over re-using the company’s name, should the company go into formal insolvency, are unnecessarily complex. And if you breach those rules, there are severe penalties, including personal liability for the debts of newco should it fail.
Go into your meeting with an insolvency practitioner with these points uppermost in your mind. Then, and only then, can you hope to make the right decisions.
If you’d like to buy a copy of my e-book preparing you for that meeting, go to my website at www.midlandsbusinessrecovery.co.uk