This is the highest individual monthly total since January 2019 and the third consecutive month that over 1,000 have been recorded.
So why are so many businesses with outstanding bounce back loans and other debts choosing a CVL to reach an arrangement with their creditors and close down?
There are several reasons, protections and advantages a CVL will give a director or business owner of a closing business.
A CVL follows proper procedures and has protections
An essential and unavoidable part of the voluntary liquidation process is an investigation into the directors conduct.
The insolvency practitioner overseeing the process has to provide a report to the Insolvency Service summarising the activities of the directors in the weeks and months leading up to the insolvency.
Directors who disregarded their legal duties or acted dishonestly or fraudulently will have to answer for their actions and could face punishment including fines or being disqualified from acting as a director for up to five year.
In a CVL, this is a collaborative process with the practitioner who will ask pertinent questions but will also look for explanations and evidence to support those decisions taken for the benefit of the business at the time.
They won’t look to trip up or catch out - they will help the directors provide any necessary evidence to support their records and statements.
The forthcoming Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill will give the Insolvency Service additional and retrospective powers to investigate the conduct of directors of improperly dissolved businesses in the past few years.
If they find any evidence of malfeasance then they will be able to issue the usual range of punishments but could also make those same directors personally liable for any unpaid debts.
This does not apply to directors or owners who close their business through a CVL.
A CVL is cost effective
A creditors voluntary liquidation can range from between £2,500 and £7,000 but should be considered as an investment rather than a cost.
As the process has to be completed by a licensed insolvency practitioner, the fee is unavoidable but you are also paying for the advice, support, knowledge and guidance that comes from using an experienced and dedicated professional with years in the industry.
They will guide you through every step of the process, will always be available to answer any questions you might have and can also highlight the main areas you could want to focus on such as whether you would want to reuse the company name at a later date or the most efficient way to purchase the assets of the business.
If there is any aspect of the process that they can’t dedicate themselves to - such as reclaiming redundancy pay for directors - then they can recommend appropriate partners that could help.
A CVL is efficient
The creditors voluntary liquidation is a streamlined, tried and trusted procedure that can be completed in as little as two working weeks from the initial meeting to business closure.
All of the essential meetings can be conducted remotely including the creditors meetings to reduce travelling time and expense and while the majority of required documentation can be securely uploaded, if anything has to be physically sent, the practitioner will provide a detailed list of requirements in advance to give you time to find the appropriate evidence.
After a free, initial consultation, the practitioner will provide a review of your situation and recommend your available options. If you decide to proceed with a CVL then the practitioner will convene the necessary creditors and shareholders meetings once officially instructed by you to act.
Once these meetings are satisfactorily concluded then the business can be legally placed into liquidation and the practitioner begins realising any assets and completing any outstanding issues.
A CVL is conclusive
A creditors voluntary liquidation will also provide solutions to many outstanding problems and issues hanging over business owners or directors of a company facing hard times.
As more signs of normality and pre-pandemic behaviour return for consumers, many businesses are still finding themselves having to deal with the consequences and effects of 18 months of disrupted trading.
And while the efforts have been nothing short of heroic, some will find that the combined circumstances will be just too much to overcome and otherwise viable businesses will have to look at alternative measures to survive in the short term.
But even this might not be enough to give the business a chance of future profitability and closure will be the only real option for them - although this will free them to pursue new ventures and opportunities in 2022 and beyond.
A creditors voluntary liquidation is the most complete solution to close down a company with outstanding debts but it might not be the only way forward.
Once a business owner or director has their free initial consultation with one of experienced advisors, they will better understand the range of options available to them, often more than they initially believed they had.
But they have to act quickly - the longer they wait, the less options they will have and the less favourable the conditions to act under.
After an unexpected decline in the number of company insolvencies in the UK in July, the August total rose to levels not seen since before the pandemic according to the latest official monthly company insolvency statistics released by The Insolvency Service.
For England and Wales alone, the total number of corporate insolvencies for August 2021 was 1,348 - this was up 251 from the 1,097 recorded in July and is 71% higher than the 788 insolvencies recorded in August a year ago.
The total is also broadly similar to the pre-pandemic total of 1,366 from August 2019 and represents the fourth consecutive month both of insolvencies numbering over 1000 and being higher than the same month a year previously.
Of these 1,348 company insolvencies, the vast majority were Creditors Voluntary Liquidations (CVLs) making up 1,256 of the total amount.
Breaking these down further we see:
There were 89 company insolvencies in Scotland last month, up from 72 in July. This was also nearly double the number from a year ago and was 13% higher than in August 2019.
This comprised 11 compulsory liquidations, 76 creditor voluntary liquidations and two administrations. There were no CVAs or receivership appointments recorded.
From a historical perspective, compulsory liquidations have been the most common type of insolvency recorded in Scotland but since April 2020 there have been more than twice as many CVLs as compulsory liquidations. This has now been the situation for 15 out of the previous 16 months.
In Northern Ireland there were 9 company insolvencies registered which although five less than in July it was more than double the number from a year ago although 59% lower than August 2019.
This was made up of eight CVLs and one compulsory liquidation.
The overall total of UK company insolvencies for August 2021 is 1,446, which is up 266 from last month.
Colin Haig, President of R3, the insolvency and restructuring trade body said: “The insolvency figures published today highlight how much tougher the climate is for businesses and individuals than this time last year, and the toll the pandemic has taken on business and personal finances over the last 12 months.
“The increase in corporate insolvencies was driven by a rise in Creditors’ Voluntary Liquidations (CVLs).
“Numbers for this process were 115% higher than this time last year, and 30% higher than in 2019, which suggests that despite the opening up of the economy, there are a number of company directors who are opting to close their businesses after a year and a half of trading in a pandemic.
“This comes despite the fact that August was one of the better months for businesses since the start of the pandemic. The lifting of the final restrictions and continued impact of the vaccine rollout means that more people are working, shopping and spending and that looks set to continue as we enter the autumn.
“However, with the furlough scheme closing at the end of this month, company directors need to be aware of the signs of business distress and seek advice if any of them appear.
“If a firm is having problems paying rent, staff or suppliers, has issues with cash flow, or its directors are concerned about its future, now is the time to seek advice from a qualified professional, rather than waiting until the problem has become worse.”
The numbers couldn’t be any clearer.
For the fourth month in a row, company insolvencies are higher than they were a year ago and now are nearly back to where they were before the pandemic began.
This is before the furlough scheme finally winds up at the end of September and winding up petitions can begin for businesses that owe creditors over £10,000 - under this amount continues to be suspended until the end of March 2022.
As HMRC begins to increase their clawback of outstanding debts including overdue bounce back loans and VAT arrears, the next few months look increasingly tough for businesses already struggling with their finances.
If there’s a time to look for help and get expert advice on what options are available then it’s now.
Any business owner or director taking advantage of our free initial consultation might be surprised at how much room to maneuver they actually have, but until they get in touch and let us know their situation - they won’t know for sure.
What we know for sure is that the longer businesses leave it, the less opportunity they will have to act when they really need to.
The Twilight Zone was an innovative and groundbreaking TV science fiction and mystery series made in the 1950s and 60s.
It’s been rebooted several times but some of its most famous episodes have been updated and parodied so much that they become part of the general culture.
So much so that the original moral of these stories tends to get washed out and forgotten in the retelling.
One great example of this is the story of “a kind of stopwatch” that was remade as a film called Clockstoppers and as a part of The Simpson’s Treehouse of Horror halloween specials.
Both in the original and in the Simpsons version - a man or Bart and Milhouse acquire a stopwatch with one unusual extra feature - it can be used to stop time itself.
Like previous owners, they misuse the power, it breaks and while they ultimately repair it they remain marooned in time for several years.
The moral is that while it might be nice to stop time, it can’t be done permanently and time eventually moves on and catches up with us.
But what if you could pause time for long enough to give you space to work on ways to improve the financial outlook for your company or that could stop or freeze creditors actions while you arrange advice and assistance so that when they restart, your business would be in a stronger position to engage with them?
An Insolvency Moratorium might be the answer you’ve been looking for.
It allows businesses to have an enclosed legal breathing space away from creditors’ recovery actions like winding up petitions or bailiff visits while a recovery plan is formed.
This will restructure the company's debts and give creditors more chance of ultimately being repaid rather than seeing the company go into liquidation with the increased risk of not receiving repayment.
When first granted, an insolvency moratorium automatically lasts for 20 working days.
This can be subsequently extended for another 20 business days if required with more extensions available for complex cases and only with the consent of creditors themselves.
The company directors remain in control of the business and continue to run it on a day to day basis but a monitor is appointed to make sure that all conditions are being adhered to.
Of course the business also has to keep on paying any rent, employment entitlements or any liabilities that come from financial service contracts and the monitor’s fees and expenses - although this is agreed in advance.
What happens when a moratorium ends and time restarts?
Depending on various factors there are several ways an insolvency moratorium can be resolved.
The business raises new funds and investment from shareholders or directors own funds, or it could include a business loan secured with the aim of consolidating existing company debts into manageable payments.
A CVA is arranged with the creditors approval and the business continues trading and making regular monthly payments to creditors in return for being allowed to continue to trade and a proportion of existing debt being wiped.
Preferably after taking professional advice, the directors or business owner reach an informal payment plan with their creditors to begin paying down the debt. Additionally, if tax arrears are owed then a formal Time to Pay arrangement could be reached with HMRC.
Missing repayments for both could have serious consequences so should only be entered into carefully.
Sadly not every business can be saved even with an insolvency moratorium. If the debt and other issues prove to be insurmountable then the moratorium is ended and the business enters administration or liquidation.
“If you knew time as well as I do, you wouldn’t talk about wasting it” - Alice through the looking glass
Rules are changing at the end of September for winding up petitions and several other instruments including the final end of the furlough scheme.
The end of the year is in sight and the remaining weeks and months should be spent trying to regain momentum and build up to the best Christmas trading period for at least two years.
But what if you’re struggling with deciding which repayments to miss or trying to raise enough liquidity to make the minimum costs needed to avoid running up arrears for bounce back loans or other borrowing?
Even before thinking about an insolvency moratorium or other procedure, you should get in touch with us.
We offer a free initial consultation for any director or business owner who needs some impartial, expert advice on what they can do to help get their business back in shape for a hectic end-of-year period.
You could have more options than you think and if you’ve acted quickly, could even start to implement them and see results very soon.
However time will continue to tick by and if you don’t use it wisely then you could still have the same or worse difficulties later but without the time to fix them.
Which not even a magic stopwatch could help you with.
There are still local spikes here and there all over the UK and as we enter the traditional winter flu season, there might be temporary measures deployed if coronavirus cases rise sufficiently.
The government has also declined to implement planned vaccination passports for people attending large events in England so individuals and businesses could now begin to plan their Autumn activities with more certainty.
Against this backdrop it’s been confirmed that the various remaining pandemic support measures including the coronavirus job retention scheme or furlough will definitely end on September 30th along with a lifting of the ban on winding up petitions.
While it was expected that creditors would be able to seek winding up petitions once again, there’s been a sizable catch - so that now bringing a winding up petition is literally a £10,000 question.
New legislation to be introduced in parliament shortly will:
These measures will remain in place until March 31 2022.
Business Minister Lord Callanan said: “The time is right to lift the insolvency restrictions that were needed during the pandemic.
“At the same time, we know many smaller businesses are rebuilding their balance sheets and reserves, and some will need more time to get back on their feet. These new measures and protections will help them to do that.”
The minister said that businesses should pay their contractual rents where they’re able to do so and also confirmed that existing restrictions will remain in place on commercial landlords from pursuing winding up petitions against limited companies to repay commercial rent arrears built up during the pandemic.
Additionally commercial tenants will continue to be protected from eviction until March 31 2022 while a rent arbitration scheme to deal with commercial rent debts accrued during the pandemic is implemented.
One measure not time bound by restrictions are new legal powers given to the Insolvency Service which allow them to retrospectively investigate the conduct of directors of dissolved companies.
If they can prove that directors were dishonest or culpable in behaviour which led to their company’s failure then as well as being made personally liable for any debts incurred, they can be disqualified from acting as a director for up to 15 years.
This includes bounce back loans so obtaining professional advice is critical if you’re thinking of closing your business.
Chris Horner, Insolvency Director with BusinessRescueExpert.co.uk said: “The new £10,000 threshold for winding up petitions sounds like a big increase from the previous minimum level of £750.
"But in reality, due to the associated expense in issuing winding-up petitions, the vast majority of pre-COVID winding-up petitions were over the new level in any event.
“Eager creditors will examine their options carefully and look to use whatever leverage they have.
“Hopefully, many companies use the new 21 day period to negotiate sensible repayment plans. Seek expert help if in doubt about how best to approach this.
“Like the insolvency moratorium that’s automatically granted if a company goes into administration, this provides valuable breathing space and time for a business to come up with plans to deal with problematic debt.
“This includes outstanding bounce back loans or VAT arrears - they haven’t been suspended - and a business can still close down, even if a company has these debts but only if it’s done using the right method overseen by an insolvency professional.
“For example, If a business with unsustainable debt wanted to close and started the process in the next couple of weeks - it could probably be concluded before Christmas, leaving the directors or owners free to begin a new venture or career in 2022.”
Time is only an asset if it’s used effectively.
The 21-day negotiation period of winding up petition restrictions and £10,000 floor is only useful if you take advantage and get professional advice now because it will, like all the others, cease eventually.
We offer a free initial consultation to any business owner or director who wants to know the best way to close their company or if possible, restructure and keep it alive, even if it has debts.
Once we get a better understanding of the situation, we can come up with a tailored solution possibly with more options and choices than you thought you had.
But this is only possible if you use your agency and get in touch.
For instance, it’s common sense for builders, scaffolders and cement pourers to be classed together under construction but what about a travel agent and a security guard?
Or a car leasing company and a landscape gardener? Or an employment agency and a bouncy castle hire business?
They all come under the seemingly disparate title of administrative and support businesses which is a broad umbrella title that covers amongst others:
So now we know which sort of businesses we’re talking about - how did they collectively manage during the year of lockdowns and afterwards?
Less is more
The initial figures show that in the year leading up to the first lockdown being implemented - Mar 2019 to Feb 2020 - there were 1,798 insolvencies involving businesses in the administrative and support sector.
The immediate 12 months afterwards - Mar 2020 to Feb 2021 - saw 1,421 administrative companies close.
Although this is 377 less, it’s still larger than might have been expected considering the temporary halt on creditor actions like winding up petitions and the range of additional support made available to businesses over the past 18 months.
1,421 is a larger number than the losses reported by the hospitality and retail sectors, which were most popularly believed to be the worst affected in the pandemic with 1,378 hospitality companies and 1,355 businesses in the retail sector becoming insolvent.
According to official statistics supplied by the Insolvency Service, there have been an additional 358 insolvencies in the administrative sector since March this year which takes the total number since lockdown to 1,779 - which is 118 a month or 29 a week shutting their doors.
Did bounce back loans soften the blow?
The coronavirus jobs retention scheme or furlough, did help a lot of administrative businesses keep staff rather than forcing them to be made redundant.
As the travel industry ground to a halt and nightclubs and other sectors that would usually require security staff didn’t need them, administrative businesses with no income needed support and quickly.
The bounce back loan scheme and CBILS was rolled out for just such a purpose and these companies made use of it.
The number of loans taken out by administrative services was 102,946 - more than the collective borrowing of the manufacturing, real estate and transportation business sectors.
The total amount borrowed was £3 billion, which is an average borrowing amount of £29,141 per company.
Under the most conservative official estimates, it’s expected that 15% of the total lent to the industry would remain uncollected would be £450 million but if the default rate rose to even 40% then this figure would also grow to £1.2 billion.
Since pandemic restrictions began to be lifted, administrative businesses can begin trading again and supplying their valuable services to customers but there are storm clouds gathering on the horizon.
The furlough scheme is finally being wound up at the end of September which means businesses either have to bring their furloughed workers back on full pay or implement redundancies.
Any bounce back loan or CBILS arrears will continue to grow if they’re not being paid and any outstanding VAT arrears from their suspension in 2020 are now due too.
Creditors will also be able to begin to take action to reclaim unpaid debts from September 30th too, allowing them to seek statutory demands and winding up petitions if not paid within 21 days of receipt.
Chris Horner, Insolvency Director with BusinessRescueExpert.co.uk said: “Administrative businesses have had one of the worst hands dealt to them during the pandemic and lockdown.
“A lot of them didn’t qualify for any support other than bounce back loans and repaying these could become one of the biggest challenges businesses face this and next year if they aren’t able to trade like they did before.
“The travel industry is still in flux to put it mildly, hospitality and nightclubs are just reopening but will need to comply with new rules and regulations shortly with little guidance being given to their security on how they will be implemented.
“The shakeup in the commercial property sector will have big knock on effects for cleaning and landscaping businesses that service them so will make their financial forecasting nearly impossible to predict too.
“One thing administrative and service businesses can do is adapt and adapt quickly so they can use their talent and experience to take advantage of the little time left before September 30th and get some professional advice on how they can help themselves before so many rules change.
“A recovery strategy can work but only if it’s created and implemented now. This can include managing any unsustainable debt including bounce back loan arrears, VAT arrears or CBILS.”
A lot of people thought that by the end of September 2021, if not business as usual, we’d be at a stage of business getting back to usual.
But for many companies and sectors - especially administrative and support businesses - it really isn’t.
Debts have increased, more are appearing and the last protections from creditors are days away from being removed.
There could still be a practical way forward for a business in this position but only if they take the first step and get in touch to arrange some practical, professional advice.
We offer directors and business owners a free, initial consultation to set out their position and once we get a full understanding of the issues we face, we can work with them to create a strategy to meet and defeat these challenges.
But get in touch today because after September 30th, the choices might be harder still.
The ones that if solved or removed, would be a launchpad for the success that would likely follow because all the other fundamentals are strong.
It’s a problem video gamers come up against quite often.
They face a seemingly-impossible end of level boss that no matter what strategy they try, they cannot defeat and get past.
Countless hours have been invested and the familiar but rarely sincere “just one more go” has been invoked more than once but the only certainty has been the same negative result.
In the age of Youtube, Twitch, Discord and even gaming performance coaches - there are more ways to find this assistance - amateur and professional - than ever before so they can proceed towards their final goal.
Which brings us back to businesses in the same situation - where’s their solution and video guide to get them past their immediate insurmountable hurdle and help them to literally level up?
The good news is that it’s far easier to find than asking a bigger kid in an arcade to do it for them.
An administrator can be their extra life and give the company the fresh start it’s been reaching for - preserving jobs and giving the business a power up just when it needs it - but it does come with risks.
To clarify, administration is a formal, legal insolvency process that places an external manager - the administrator - temporarily in charge of a business with the aim of turning its fortunes around and saving the company.
This is a serious decision that can have ultimate consequences for a business so should not be entered into lightly or without getting professional advice first to see if it is the most appropriate course of action.
If this is the case then administration is a proven method of helping otherwise viable businesses restructure and regroup before reemerging stronger than before the administrator takes temporary charge.
Another important point to remember is that the administrator represents the interest of the company’s creditors at all times, not the management.
They’re there to make sure creditors can see the best possible return on their expenditure. If that’s through returning the business to profitable trading then they will pursue that option.
If it’s selling the business under a pre-pack arrangement to new management then that will be their chosen course and if the last recourse to secure their money is through liquidating the business and selling the company’s assets off to generate the best return - then they’ll do it.
Once an administrator is officially appointed they will produce a recovery plan which will always be based on repaying as many debts as possible and looking at ways money can be saved in the immediate and short term to reach the goal of saving the company.
They will be aided by an insolvency moratorium applying immediately which halts all creditor actions, giving the administrator time to put their plans together.
Administration is not an open-ended situation that will be allowed to continue permanently.
A creditors meeting must be held within ten weeks of the administration being entered where they will outline their proposals and their recommendations.
Depending on the unique circumstances surrounding the business - its asset portfolio, cash flow and banking situation - they will inform the creditors what the most realistic outcome will be and what the plan is to achieve it.
This may even involve redundancies or other cutbacks in the short term.
An administration can end in several different outcomes depending on the circumstances and future viability:
The moratorium could give the administrator enough time to solve the immediate financial issues through raising extra funds through asset sales, new investment or informal agreements reached with creditors to settle existing debts.
If this happens then it’s mission accomplished - the administrator hands back the business to the directors who will continue to run the company.
Now free of the financial problems that originally burdened the business.
An administration might not be the only insolvency procedure the administrator needs to employ depending on the circumstances.
If the debt is particularly difficult to restructure and is the main obstacle to the business trading profitably in future then they might decide that a company voluntary arrangement (CVA) is the best option to pursue.
Creditors are approached to see if they will accept a regular, monthly payment from the business in return for writing off a proportion of the overall debt.
This will usually be in their interests as they will stand to gain more from the payments than through any other method including asset sales following liquidation.
If agreed, the directors resume control of the business and it resumes trading with the new CVA payment agreement in place.
The business might be made viable once again but it might fare better under new management or owners bringing fresh ideas, energy and investment.
The administrator will market the business for sale immediately and conclude the deal while the business is still protected by the insolvency moratorium.
The existing directors might even be part of the ownership teams depending on circumstances but once the deal is concluded and the new management is in place then the administrator hands back control to this group and exits.
Sadly the debt and problems of the company might be insurmountable for even the best administrator and the only viable way forward will be to close the business down through a creditors voluntary liquidation (CVL) process.
The business is closed down in an orderly fashion and it’s assets and property are sold off with the returns going to pay off creditors in legal order of precedence.
Because the business will already be in administration before the liquidation process begins, most assets will already have been sold prior to this so once a CVL is entered into, the funds can begin to be distributed to creditors.
In the battlefield of giving business owners and directors the chance to fight another day, it’s our call of duty to give them the best advice and support possible.
We don’t claim to have a halo but if you get in touch and arrange a free initial consultation with one of our expert advisors, we’ll let you know which options and strategies would have the best mass effect on your company’s chances of recovery and renewal.
Business life is strange and unpredictable so we’ll help you go through the gears when it comes to implementing any changes you need to. It’s a far cry from leaving you to manage on your own but an essential part of our service.
If it’s time to reboot your approach, do it with a Business Rescue Expert by your side.
The Coronavirus Job Retention Scheme, more commonly known as furlough, was launched in March 2020 to support businesses and employees through the unprecedented disruption caused by the coronavirus and subsequent lockdowns.
In our Year of Lockdowns report we found that one in three UK workers were in receipt of a furlough scheme payment at some point in 2020.
The popularity of the scheme peaked in April 2020 when just under nine million workers were furloughed although this total has reduced to just over 1.9 million by the end of June 2021.
According to the latest official figures, 11.9 million jobs had been placed on furlough by over 1.3 million employers at some stage during the previous 18 months at a total cost of £65.9 billion.
This might seem expensive but it would be argued by supporters that it fulfilled one of its primary objectives by holding the unemployment rate at 5.1% at the end of 2020 which saw an additional 1.7 million people looking for work but without furlough.
This figure has since reduced to 4.8% at the end of June 2021 and is currently only 0.9% higher than at the beginning of the pandemic.
Since May 2021, the central contribution to employees wages from the government has reduced from a figure of 80% of the total wage up to a maximum of £2,500 down to 60% of the total to a maximum of £1,875.
The employer continues to pay national insurance contributions (NICs) and pension contributions for staff as well as a 20% contribution to wages for hours not worked up to a maximum of £625.
Along with many other notable changes occurring at the end of the month, the one which is expected to have the most immediate effect is the final closure of the CJRS.
Chris Horner, insolvency director with BusinessRescueExpert.co.uk, thinks attention should be paid to the discrepancies between various sectors and mismatches between vacancies and employees when analysing the impact.
One example is in the hospitality sector including both accommodation and food services.
The Office for National Statistics vacancy survey showed that 117,000 jobs were available between May and June but at the same time 337,800 staff remained on furlough during this period.
Even if furloughed staff successfully reapplied for all those positions, there would still be over 220,000 workers left without positions.
He said: “When you have a mismatch between the sectors that people are on furlough from and the sectors that are actively recruiting then there will naturally be an imbalance that has to be carefully managed - both in terms of the personnel and the support given to businesses in those areas.
“Some skills will be transferable but not every position is.
“Sales assistants and hospitality staff might not want to take pay cuts to move into the care industry or spend time retraining as a delivery driver or production operative for instance.
“This could clearly have implications for businesses and unemployment in the short term at least.
“For small business owners and directors, who are already juggling with bounce back loan repayments, VAT arrears, the return of creditor actions including winding up petitions and business rates, a staffing crisis will be the last thing they need.”
If you think the school holidays and summer went quickly, you won’t believe how soon the end of September will arrive.
There is still just enough time to get in touch with us and arrange a free initial consultation with one of our expert advisors.
If you’re worried or already having problems repaying debts like bounce back loans or VAT arrears then we can help advise you on what your options are.
The sooner you take action, the more time and leeway you’ll have to use - because sadly, time and choices will eventually run out.
If a business has no viable way forward then liquidation is usually the best option - and it’s a tough decision for a business owner that grasps the reality, let alone one that hasn’t joined the dots fully.
It’s a similar pattern to the five stages of grief, first identified by Swiss American psychiatrist Elisabeth Kübler-Ross in 1969.
Some business owners go through a very similar journey when deciding what to do about a company that has no realistic path to profitability anymore.
Easily the most common phase as all the warning signs including mounting debts, VAT and bounce back loan arrears are ignored or written off as temporary setbacks or problems that can easily be solved if they have a couple of good trading months.
Sadly by the time directors understand the depth of the problems they’re facing, it’s too late to build an alternative strategy and they really only have liquidation left as a viable option.
Another common reaction to problems is to react aggressively to them.
Work harder, work longer and if that doesn’t immediately transform fortunes when you’re physically and mentally tired, reflect on how It’s just not fair.
It’s not fair that they’ve worked so hard and things haven’t gone to plan. It’s not fair that the pandemic hadn’t happened when it did, or lockdown came along, or several other things that stopped the business from succeeding again - if only they hadn’t happened.
From a business perspective, this is the phase when some of the most serious mistakes a director could make occur.
Not deliberately but because they see the solution to their company’s problems through a binary “yes/no” lens. They become more prone to think that if they can just get one loan or arrange more financing or stock, no matter how steep the terms or if they can repay at all, then everything else will fall into place and will automatically lead to a good outcome.
Offering personal guarantees for loans when they might not be able to afford it under normal circumstances is a good example of bargaining under the influence of professional grief.
Sometimes not choosing to act is a choice in itself but if you’re facing the demise of the business you’ve poured your heart and soul into, then it can easily lead to sadness and depression that will stop you thinking and acting logically and rationally.
What’s worse is that this is the time when directors need a clear focus and determination to make the right decisions under the stress of a financially struggling business - but this can be undone if they begin to lose hope and give up while there is still a chance to positively affect the outcome.
The final stage of grief is when everything makes sense and the griever understands the process, their role in it and what is expected of them.
The tragedy for a lot of businesses is that by the time owners and directors reach this stage and are mentally and emotionally able to make the decisions required to rescue or revive their company’s fortunes, it’s too late to affect the outcome.
But what directors and owners of those businesses wouldn’t give to have a genuine chance of being able to survive and could return to making money if they can keep trading for a little while longer?
For some this is the reality and what is the best course of action for these businesses?
A company voluntary arrangement (CVA) might be the perfect solution to both satisfy creditors and give the business a recognised path back to profit.
Like liquidation, a CVA is a formal insolvency process that has to be overseen by a licensed insolvency professional but instead of closing a company down, it provides a way forward for a business to continue trading and pay off debts while it does so.
The second part of this is critical as creditors have to agree to a business undergoing the process and will usually also have to agree to write off a proportion of any accrued debt in order to give the company a better chance of being viable and getting any kind of repayment.
In return for this generosity, creditors will receive regular payments to repay the remaining debt over a period of months, usually five years.
The business will continue to trade during this time, jobs will be saved and creditors will get back some of their funds whereas in a liquidation the probability would be they wouldn’t receive anything close to this amount - if any.
Another advantage of a CVA is that it immediately halts all creditor activity such as winding up petitions and bailiff visits while the process proceeds.
Chris Horner, insolvency director with BusinessRescueExpert.co.uk said: “If a company’s debts and circumstances are too difficult to overcome then liquidation is nearly always the proper way forward.
“But if directors take advice early enough in the process and there is a clear and compelling case for the business to be successful if some circumstances are changed or debt removed, then a CVA might literally be a viable alternative.
“A CVA doesn’t guarantee a positive outcome - the directors still have to do their jobs well and the business still has to make a profit, function properly and make regular repayments to creditors. If any of these don’t happen then the company might still be closed down and liquidated.
“Every company and circumstances are different and their owners and directors will have a lot of questions about the CVA process.
“But we can answer the most important one right now - does a CVA give a business hope and a fighting chance? Yes it does.”
An important part, possibly the most important part of the grieving process is time.
It’s also the one in most short supply as small problems turn into big ones in the blink of an eye. It’s the same with businesses.
Issues that can be solved and managed if tackled at the right time can become insurmountable, drastically reducing the options available to a business owner to make the necessary decisions to rescue or restructure their business.
With the end of September already in sight, the window of opportunity to act to protect a company before creditors can take action is getting smaller every day.
Don’t waste the time that’s still available to you - get in touch with one of our advisors today to arrange a free initial consultation.
Once we get a clear picture of your circumstances, we can recommend various causes of action you can take that can really make a difference but only if you act on them soon.
Otherwise time might just be the first thing to get away from you.
Technically it’s supposed to be the summer holiday season but we’ve seen precious little of that.
KEO Films pre pack deal
The TV production company KEO films co-founded by presenter and chef Hugh Fearnley-Whittingstall has been bought out in a pre pack administration deal by Passion Pictures after declaring itself insolvent.
KEO films produced popular and award-winning shows such as “Hugh’s War on Waste '' and “Easy Ways to Live Well” and described itself as having a strong ethical brand reputation. It’s latest acclaimed documentary series to screen was “Once Upon a Time in Iraq” broadcast by the BBC.
The directors declared they were unable to put enough money into the business to maintain it as a going concern with the impact of the coronavirus proving terminal.
The deal has secured 20 jobs in the business and the new owners are voluntarily looking to repay as much of the debts KEO films owed to creditors before it went into administration.
Will Anderson of KEO Films said: “We are trying to do the right thing in a difficult situation and are trying to come to arrangements with people where we can.”
While not all of the old company’s debts could be repaid, the new owners have made offers to repay the majority of freelance employees in full.
Hugh Fearnley-Whittingstall stepped down as a director once the deal had been completed but continued to make programmes with the company under the new ownership.
Formaplex pre pack administration
Formaplex - a major manufacturer with four sites in Hampshire - which supplied lightweight plastic components to the automotive, motorsport, aerospace, medical and defence markets was bought out by new owners this month in a pre-pack administration.
The 20-year-old business was rebranded as Formaplex Technologies by its new owners and 110 posts were lost during the process.
A spokesperson for the ownership group said: “While positive progress had been made, to secure the long-term future of Formaplex, the business needed to take further steps to strengthen its balance sheet.
“As a result, Formaplex Ltd was placed into administration and we agreed to purchase the business and assets of the company from the administrators on the same day through a procedure known as a pre-pack administration.
“There has been a seamless transition of customers and employees to a new business, Formaplex Technologies. We have secured the support of all the major customers and an experienced new CEO has been appointed.”
Minster construction closes
Mansfield-based Minster Building Company went into administration with 26 staff losing their jobs.
First formed in 2007, Minster specialised in constructing supported living facilities for vulnerable citizens but due to delays in planning and construction processes due to the pandemic combined with price increases in building materials meant that most of their current projects became significantly loss-making.
All work ceased on their various work sites from the East Midlands to the North East.
A spokesperson said: “It’s a great shame that a long-established construction business has been laid low by the knock on effects of the Coronavirus crisis.
“Not only have jobs been lost and suppliers left nursing substantial losses, but the vulnerable people who would have been housed in the properties being built by the Company will suffer as a result of the inevitable delays in completing these projects.
“The UK construction sector is facing acute difficulties as a result of the pandemic and the severe disruption it has caused to its operational processes, supply chains and labour resources. Sadly, Minster will not be the last failure in this vital industry.”
Garrandale, an engineering company based in Derby, has gone into administration.
The 45-year-old business began designing equipment to help streamline manufacturing in the automotive, healthcare, oil and gas sectors. In the 1980s they began manufacturing production equipment for railway carriages and continued progress working with companies such as AEA Technology and Bombardier working on a system that prevented train wheels from slipping.
The company’s expertise was also sought to help build the Hadron Collider and work on the Ariane space rocket used by the European Space Agency but has now officially gone into administration with the loss of approx. 70 positions.
AMG or AM Griffiths based in Wolverhampton appointed administrators earlier this month.
The business, founded in 1899 by Arthur M Griffiths, was profitable as recently as 2020 and worked on many private and public sector projects including building many schools and hospitals and was responsible for many major landmark buildings across the Black Country.
The company was unable to secure additional work and has ceased trading altogether with the loss of 60 permanent positions.
Six Day Series
Madison Sports Group, which staged the popular Six Day cycling series in London, Manchester and locations abroad went into administration as Covid-19 forced the cancellation of all their planned live events.
A spokesperson said: “Madison Sports Group and Six Day are prime examples of companies with solid business models whose difficulties have been greatly exacerbated by the fallout from Covid-19.
“With the majority of sports events closing down completely over the past year and a half, both companies' revenue generating capabilities have decreased markedly.
"Following the financial year-end and as a result of Covid-19 events have had to be postponed due to the health concerns of athletes, staff and guests and it is not possible to quantify the impact on the business, creating a material uncertainty over its future prospects.”
Six Day launched in London in 2015 with cycling stars such as Sir Chris Hoy and Mark Cavendish and has taken the format to other major cities with other stars but the enforced halt of all activities was too much for the business to survive.
The Indian sauces manufacturer first founded in Leicester in 1977 has gone into administration with the loss of almost 100 jobs.
The business produced a range of traditional Indian foods for both supermarkets and the foodservice industry and while they had invested heavily in recent years, growing their operations, the loss of business caused by the Coronavirus pandemic and recent labour shortages placed significant pressure on the company leading to the appointment of administrators.
A spokesperson said: “The pandemic significantly impacted the implementation of Simtom’s strategic plans.
“Our immediate priority is to support employees made redundant so they can make claims via the redundancy payments office and looking for potential buyers for the business.”
The Glenburn Hotel, built in 1843 on the Isle of Bute and billed as Scotland’s first hydropathic hotel, has closed and gone into administration with all staff being made redundant.
The hotel overlooks Rothesay Bay and was popular with businesses and holiday makers alike due to its location and extensive facilities.
The administration has primarily been caused by significant operating costs, coupled with the fall in revenue due to the Covid pandemic whilst still having to meet significant maintenance and running costs.
A spokesperson said: “Unfortunately, having explored all its options, the hotel was unable to survive the significant fall in revenue caused by the Covid-19 pandemic whilst still having to meet significant maintenance and running costs.
“We will now focus our efforts on assisting employees, many of whom have worked at the hotel for many years, to submit their claims for redundancy and other sums due to them whilst preparing to market and sell the hotel.
“Whilst this is a sad day in the Hotel’s history, this is an outstanding opportunity to acquire an iconic hotel on one of Scotland’s most accessible islands.”
A Grantham based manufacturer has gone into administration with the potential loss of 100 employees.
Fruehauf was founded in 2010 and produces a range of tipper and rigid trailers, quality control systems and techniques.
Administrators are considering several options including a company voluntary administration (CVA) as well as a potential sale to any interested parties.
Freuhauf produced around half of the tipping trailers sold in the UK and ongoing delays to orders had already led to a major trailer shortage across the entire supply chain.
The business will continue to trade while in administration but this situation might exacerbate delays.
Newcastle based Kapex Construction which was involved in a number of high profile schemes in the city has appointed administrators.
The business launched in 2016 to work on various housing schemes throughout the North East of England and employed 62 people directly last year.
The company was recognised by RICS for its work on All Saints Church, an 18th Century Grade 1 listed building which was on Historic England’s Heritage At Risk Register.
The business was in profit in 2020 but the cessation of building work for the majority of the previous 18 months has proven insurmountable.
O’Keefe Construction based in Greenwich has entered a company voluntary arrangement (CVA) with its creditors after suffering significant losses in the financial year to May 2021.
The business employs 178 has operated in London and the South East for over 50 years but took professional advice following severe cash flow challenges and are pursuing a CVA to continue trading while they restructure their debts.
A spokesperson said: “A CVA will secure the company’s future as a going concern and allow it to continue to service its ongoing clients.
“Crucially, a CVA will also maximise the returns to the company’s creditors, compared to alternative restructuring procedures.
“On a successful approval of the CVA proposal, the company’s shareholders will contribute additional sums to support its short term cash flow and to ensure the business has increased liquidity levels.
“The financial restructuring afforded by the CVA, alongside operational improvements made to the business, will ensure that O’Keefe is well placed to complete its ongoing and profitable work and to fulfil its client needs.”
CEO Patrick O’Keefe said: “The board was tasked with delivering the business out of the current difficulties and after taking specialist advice, has agreed to enter into a CVA to allow this mechanism to secure the long term success and profitability of the business.
“Thanks to our exceptional staff, our current portfolio of jobs is trading very well. The conclusion of the CVA process will immediately put the business on a positive footing.”
“The directors are optimistic regarding the future success of the company in view of the significant forward order book and improving project margins.”
We’re now into the last third of the year and what might be the most crucial month for businesses to get help and make essential decisions to secure their future for the rest of 2021.
September will see bills and debts continue to mount, the furlough scheme finally coming to an end, CBILS and bounce back loan repayments continuing to come due, defaults rising and the ban on creditor actions such as winding up petitions being lifted.
The time to get advice and hear what options your business has to manage its debt obligations including VAT arrears or bounce back loans is short so the best time to get in touch with us is today.
We’ll better understand your situation and be able to give you recommendations you can act on immediately to set plans in motion that will give you and your business the best chance of getting into 2022 and then working towards your medium and longer term goals.
Before any of that can happen though, you need to take action - the sooner the better - because for some companies, the end of this month will be too late.
But is there a way that they can come back? And why would a director want to resurrect a closed company anyway?
Administrative restoration is the official term for bringing a dissolved company back into existence and we’ll explain further how they can be returned to life and why directors might want to do this.
One reason why a dissolved company could be restored is if the directors believe it may have a profitable future trading again. Maybe the market conditions have changed or they are in a better position to make a success of the venture now than they were previously.
The only limit to restoring a business in this way is it cannot have been dissolved for more than six years.
The six year time limit also applies when directors look to restore a business in order to release and realise an asset.
If a business is struck off or dissolved while still holding assets then they could become the property of the crown after a certain amount of time has elapsed. Also, they could be classed as ownerless or “bona vacantia”.
In either scenario, if this is why a company is being restored then Companies House could temporarily place the business back on the register in order to facilitate the asset transfer or sale.
Unlike the administrative restoration time limit of six years, there is no such restriction when it comes to pursuing claims against a dissolved business. The company might have to be restored in order for an injury or other legal claim to be lodged against it and subsequently defended.
The final reason to restore a struck off company is to rectify mistakes made during the initial process.
A company can only be struck off if it has no debts or arrears.
Under the imminent Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill - HMRC and the Insolvency Service will be granted retrospective investigation powers against directors.
This will allow them to look at the circumstances and actions of directors of dissolved companies and if any errors were made, such as striking off a business with an outstanding bounce back loan or VAT arrears for example, they could be followed with sanctions.
These would not only be fines or a disqualification period which could stretch to 15 years but under the new laws, directors could be made personally liable to repay company incurred debts.
Businesses that have been struck off by Companies House for failure to submit annual accounts or confirmation statements can also be reinstated but like all administrative restorations, they have to meet a certain criteria such as trading when they were struck off and that Companies House enforced the decision, not the directors.
If they do then they can apply to Companies House and complete an administrative restoration form.
If the business was not forcibly removed or doesn’t meet the criteria then they can seek company restoration by a court restoration order instead.
Once the application is filed and if all the essential forms such as business accounts and financial statements are up to date then the procedure will usually be completed in about four months.
Chris Horner, insolvency director with BusinessRescueExpert.co.uk said: “Restoring a company just to liquidate it might sound like a hassle but it could be the best thing a director could do to protect themselves if they have any concerns.
“The new legislation is almost exclusively aimed at directors who have tried to avoid repaying bounce back loans and other debts through dissolving their businesses.
“But directors who inadvertently struck off their company while it still had debts could very well get caught up in the same sweep.
“Directors who liquidate their companies voluntarily through a creditors voluntary liquidation (CVL) or other process don’t have anything to worry about - HMRC and the Insolvency Service are not targeting them.
“To avoid any doubt and worry, it would make sense for a director to restore their company, liquidate it and then continue with their career after all the loose ends have finally been tied up.
“They would then avoid disqualification and being made liable for a compensation order up to the value of the company debts plus fines and costs on top.”
Liquidation brings many benefits to a business owner or director.
As well as having more say in the process of appointing a liquidator, they can also legally close down even if they owe bounce back loans or other debts.
It brings finality to the situation through a definitive ending allowing the owners or directors to move onto their next venture without any more stress.
If a business has been dissolved improperly or if it had debts when it was struck off then this is a loose end that could become a bigger problem - especially if the Insolvency Service takes an interest in the business and how it was being run before closure.
Getting advice from an insolvency professional is always a good idea if you’re thinking about closing a business but if you need to consider an administrative restoration then it’s essential.
We offer a free initial consultation for any business owner or director to discuss the issues facing their company and together we can work out an efficient and effective solution which can usually be begun to be implemented almost immediately.
The sooner you get in touch, the sooner we can help.