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Could insolvency save your SME?

Many sectors have been pushed to near breaking point over the last year. Government aid schemes have staved off what may have been a tsunami of bankruptcies, but they will not last forever. What business owners may not realise is that insolvency does not need to mean the end of the road. In fact, it could even save their business.

Restructuring Plan and Insolvency Moratorium

The Restructuring Plan and Moratorium, introduced as emergency measures, aim to allow viable businesses to provide breathing space and restructure. While we have seen the likes of Virgin Atlantic use a restructuring plan, a few businesses have taken advantage of the moratorium.

Pent-up demand from creditors

The impending expiry of temporary measures such as restrictions on presenting winding up petitions and suspensions of wrongful trading rules is likely to drive up the number of companies entering liquidation. Creditors unable to take action against negligent payers for the last 12 months will be seeking ways of recovering the money they are owed.

Additionally, many out of the 2 million UK SMEs who have taken out state-backed loans since the onset of the pandemic will shortly be facing first repayments. The FSB data shows that four in ten SMEs who took a loan now describe their debt as ‘unmanageable’. In many cases, these loans were taken to assist with cash flow issues, late payments, and defaulting on bills. 

Insolvency doesn’t have to mean the end of the road

There are options for companies showing early signs of insolvency: from Time to Pay schemes to capital release, turnaround financing to Administration or Company Voluntary Arrangements. 

Company Voluntary Arrangement (CVA)

Company Voluntary Arrangement is an option if the company is insolvent but could be viable in the future. It involves renegotiating the terms of the debt with creditors, then paying them back in one recurring monthly payment over an extended period. There is no minimum or maximum term for a CVA – it could be for six months or five years, and there is no minimum or maximum amount – it is what the company can afford to pay. 

Please find attached our little checklist of the benefits of the Company Voluntary Arrangement. If you have any questions about the process, please contact us for a free initial consultation on 0800 118 2948.

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