Getting Businesses out of Debt

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The current start of the economy has left many businesses struggling to pay off outstanding debts. More than ever, companies are failing to trade successfully and are suffering financially, especially small businesses. Everywhere we look companies are closing their doors for the last time as many are filing for bankruptcy. However, there are always ways to get out of debt, whether a director is aware of it or not. The first step that should be taken is to seek advice from a professional who is experienced and qualified in insolvency advice. Although it may be tempting to bury heads in the sand and deny there is a problem, this is extremely dangerous. A problem such as debt will not go away. For this reason it is extremely important to seek a solution before the problem gets too severe. Finding a solution that is both suitable and achievable for a company will depend on a number of factors. These include:

• Type of business

• Size of business
• Turnover
• Number of employees
• Amount of debt The solutions that a company may be presented with include company voluntary arrangement, administration orders and refinancing options.

Company Voluntary Agreements

Usually referred to as a CVA, these legal agreements exist between creditors and debtors. It allows for individuals in debt to pay an affordable monthly repayment that is deemed acceptable by the creditors. Once a CVA is set in place, the company directors can usually run the business as normal with the Insolvency Practitioner supervising the arrangement. The CVA allows the business to continue whilst aiming to improve its position with its creditors and puts a stop to any court proceedings or winding up action. It allows the company to free up its cash flow pressures and enable trading to continue as normal.

Individual Voluntary Arrangements

Another legally binding agreement that can help save a business from liquidation is that of an IVA. Those who are struggling to repay their debt can make an offer to a creditor, either in the form of a lump sum or through reduced monthly payments, across a period of five years. If this type of arrangement is accepted then all creditors are required to write off any additional interest and any outstanding debt that is left once the five years is up. There are, of course, other options that are available to struggling businesses; however both of these agreements will have less effect on the day to day running of a company. If action is taken early, the better the result will be. It is highly advisable to speak with a financial adviser as early as possible to avoid a winding up order.

About the Author: This is a guest article by Nicola Winters