Insolvency and restructuring: Understanding the process
If a business experiences financial difficulties, insolvency and restructuring can help with the recovery of the business. As a stressful time, it can be tempting to ignore the problem, but this will only lead to a bigger mess further down the road. Acting early is crucial for the survival of your business.
The sooner you begin to take action, the more options you will have. Early intervention can often be the difference between business recovery or liquidation. In this article, we look at the insolvency and restructuring processes to help you gain a better understanding of the two and how they can help.
What is insolvency?
Insolvency is a financial situation in which a company or individual can no longer pay its debts. Although it most commonly refers to businesses, individuals can also be insolvent. This situation may occur when there isn’t enough money to cover the debts that are owed, when they fall due.
A business may become insolvent if its cash flow doesn’t allow for debt payment and it has no liquid assets it can sell quickly to pay the debt. Another way a business can go into insolvency is if its debts are greater than the value of everything it owns, both cash and assets. This leaves the business unable to balance its finances, meet its financial commitments and settle its debts. This is called balance sheet insolvency.
When a business or an individual is in an insolvency situation then this can also be referred to as “being insolvent”.
There are numerous formal processesses within english law which legislate how insolvent businessess and individuals must deal with their debts, these are referred to as insolvency processess.
How does the insolvency process work?
Establishing whether the business or individual is insolvent is considered the first stage of the key steps to adressing any financial dificulties. These summarised are:
- Assessing insolvency: Determining if the company is insolvent. Typically, this involves the review of financial statements and forecasts to establish whether the company or individual can pay their debts as and when they fall due.
- Seeking the help of an Insolvency Practitioner: Getting professional help to better understand if you are insolvent and what your options are.
Starting the insolvency process: If your business is deemed to be insolvent, with the assistance of a licensed insolvency practitioner, instructions must be made to follow the insolvency process most suitable to your business. The Insolvency Practitioner will need various items of info in order to assist you with preparing the necessary documents. These will vary depending on your circumstances.
What are the types of insolvency procedures?
Depending on your specific circumstances, there are three main types of insolvency for different scenarios in the insolvency and restructuring process. These are:
- Administration: This is when an Insolvency Practitioner is appointed to manage the business affairs and any property to prevent the company from going into immediate liquidation. This can help achieve better outcomes for the creditors.
- Liquidation: This is the process of winding up the business. It involves selling assets to pay creditors; it can be voluntary or compulsory.
Company Voluntary Arrangement (CVA): A CVA is a legal agreement between the business and its creditors to pay the debt over a specified period. The business can still trade if it has a CVA.
Insolvency and restructuring: understanding restructuring
Insolvency processess are the procedures for dealing with financial difficulties. However, restructuring focuses on reorganising how the business runs to help improve profitability and viability.
The restructuring process involves financial restructuring, which includes negotiating terms with creditors, such as reducing interest rates, to help improve the business’s financial health. It also examines how the business operates to make changes that can reduce costs and increase efficiency, making the business more competitive and profitable.
Finally, strategic restructuring involves overhauling the business’s strategic direction. This may include identifying opportunities in new markets, changing the product offering or merging with another business.
How the restructuring process works
When it comes to insolvency and restructuring, there are typically four steps in the restructuring element of the process. These are:
- A thorough review and assessment of the business’s financial health, operational efficiency and strategic direction should be carried out to help inform the restructuring plan.
- Planning and development of a comprehensive restructuring plan should be completed to show how restructuring could help make the business viable again.
- Implementing the restructuring plan to begin the process. This may involve negotiations with creditors, changes to how the business operates and a new strategic direction to help save the business from liquidation.
- The plan will need to be monitored and adjusted quickly to ensure it is achieving the desired outcome. Changes may be needed to make it more effective.
Why choose Bridge Newland?
As a family-owned and fully licensed Insolvency Practitioner, Bridge Newland is committed to upholding the highest professional standards. Our team, comprised of highly skilled and experienced professionals, operates in strict accordance with the latest insolvency and restructuring legislation and best practices. We are dedicated to providing you with insolvency advice you can trust.
Our experienced team of Insolvency Practitioners can advise you at every stage of the insolvency and restructuring process. Speak to our expert insolvency practitioners today for a free initial and confidential consultation.
Categorised in: Insolvency Reviews & Advice
