How to Deal With Business Debt in the UK

While the UK has seen an increase in the numbers of small and medium businesses, business debt is also at high levels according to government statistics.[citation needed] Figures released for the final quarter of 2010 show that more businesses went into administration than during the previous year.[citation needed] If your business is facing serious debt, the following steps can show you your options and help you onto the road to business recovery.

 Steps

    1
    Consider voluntary liquidation. This happens when the director of a company decides to halt company operations and put the company into liquidation. There are two types; Members Voluntary Liquidation (MVL) and Creditors Voluntary Liquidation (CVL). The advantages of voluntary liquidation include: a write off of any debt that cannot be repaid once a company is closed, leaving a clean slate and letting directors make a fresh start. Directors and investors also get the opportunity to focus their efforts and resources into growing a new company rather than trying to revive a flagging business. The disadvantages of Voluntary Liquidation include: an obligation to pay creditors. If debts are not paid, this can damage relationships and their business. Additionally, the closure of a company will result in the employees being made redundant, with no guarantee that they will receive their redundancy pay if the company is rendered insolvent. The process is usually initiated with the appointment of a liquidator and the notification to the Gazette regarding the meeting with creditors and stakeholders.
    2
    Look into Company Voluntary Arrangement. Otherwise known as a CVA, this is an insolvency procedure used by companies facing serious debt that creates a binding agreement with their creditors to settle debts over a predetermined amount of time. This lets a company make arrangements while still trading, thus aiding the recovery process. The advantages of a CVA include the ability to carry on core business functions during the process and buys company directors more time to reorganise and restructure their financial functions and issues. However, companies must stick to their arrangement, and if you fail to keep up with payments you will most likely be faced with legal action from creditors.
    3
    Research Administration Orders. This process is used when all debts can be pooled together into one pot, allowing company directors to make monthly payments to their creditors, which is then divided amongst themselves. This helps keep creditor pressure to a minimum and buys businesses time for them to get things in order and get ready for the next steps in their financial process. The process is usually initiated with the filling-in of the N92 form which can be obtained from the county court. The advantages of administration orders include the pause of all hassles from debt collectors, and the payment is based on what you can afford. If a business fails to keep up with payments, the court may revoke the administration order, meaning that your creditors can resume their demands for repayment. The administration order process lasts until debts are paid off in full. Companies using this method need to be aware of the court fees, which they could be paying off for years.
    4
    Consider Sole Trader insolvency. A sole trader is an individual who trades under their own name or has a specific name that they use for trade. Because of this, they are personally responsible for any business debts that are raised. One option for Sole Traders is Bankruptcy, a process where the estate will be taken over by an insolvency practitioner and processes businesses to convert assets to pay off creditors. The disadvantage of bankruptcy comes with the stigma surrounding the process, and the damage it could do to your credit, and your reputation. An IVA is an alternative to bankruptcy and acts as a binding agreement between creditors and the individual. This allows the trader to continue trading during the process and repayments are done over a schedule. If repayments are not met, the Sole Trader is required to go into bankruptcy.