My business is in financial difficulty — How can Worrells help me? – Insolvency/Bankruptcy

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We meet daily with the directors to discuss the financial situation of their company. Frustratingly, we often find ourselves meeting with the directors when it’s too late to save the company. If the administrators had approached us sooner, there might have been other options available to save the company. We see two most common reasons why people come to us too late:

  • Directors think things will get better, which they usually don’t unless there’s a fundamental change in their business.

  • By meeting with an insolvency practitioner, the business will simply be closed.

This article demonstrates that meeting Worrells does not mean that a formal insolvency appointment is the only outcome, or necessarily the end of the business. In fact, we believe we can offer options not previously considered or realized that may well ensure the long-term viability of the business.

The key steps any director should take if they are concerned about their company’s financial condition are summarized below.

  • Don’t put your head in the sand

The most important guideline for any director is not to “put your head in the sand”. It’s critical that administrators identify issues early so they can respond quickly and decisively. Such proactive action could make the difference between surviving or not. Ignoring the problem would almost seal the fate of the company.

An early and proactive meeting with your advisor allows you to review the company’s position with a specialist who understands the company’s true position. Your advisor knows you and your business and has the skills to help you understand the financial situation. It may be better than you think. If this review identifies financial difficulties, the next steps are crucial. As a first step, together with your adviser, you should seek advice from an insolvency expert such as those at Worrells.

A meeting with Worrells is not undertaken for the purpose of placing the company in any form of immediate insolvency appointment. These meetings aim to carry out a detailed review of the financial situation of the company (and/or the director or anyone in the personal insolvency space) in order to determine the options that may be available to the company. To properly assess the financial condition of the business, the following tasks will typically be undertaken:

  • Review the financial accounts. In particular the income statement and the balance sheet. Any liquidity problem, short or long term, will be quickly identified.

  • Review an updated cash forecast. This is important to understand the future working capital needs of the business and whether the business can generate sufficient cash flow to meet those needs.

  • Review the age and collectability of all accounts receivable.

  • Review the seniority and quantum of overdue creditors.

  • Examine the tax situation.

  • Examine the position in relation to any financial debt to bankers or other financiers.

  • Examine the company’s customer base and revenue to determine if improvements can be made.

  • Review the direct and indirect costs of the business to determine if changes can be made to improve the profitability of the business.

  • Review the company’s human resources position to ensure that it has the appropriate resources and, most importantly, that it is not over-resourced.

  • Examine the long-term viability of the business.

The above are the basics; there are many other issues that could well be considered and discussed.

Again, the purpose of the meeting is to identify the options available to the director. This may or may not involve a formal insolvency process.

It may be determined that the company’s underlying financial condition is fine, but it may have short-term liquidity problems. In such a scenario, it is likely that a formal insolvency appointment will not be necessary and Worrells Partners can put the Director in touch with other contacts in our Worrells Community network who may be able to help the company move forward. These include:

  • Financial—cash financing, receivable factoring, trade financing, etc.

  • Business brokers— assist in the sale of the business.

  • accountants— quality accountants who provide sound advice.

  • Lawyers— assist in any litigation between the company or related parties.

  • Private funders— help with financing options.

  • And much more.

If it is determined that the company’s financial situation is more serious and that proactive measures need to be taken, a number of options will be discussed.

If the strained financial situation is identified early enough, it may be possible to consider options with the desired outcome: to restructure the business into a more profitable position. Steps can then be taken to request a moratorium from former creditors so that their debt is paid overtime from future profits. This is usually done through a small business restructuring or a formal appointment by deed of business arrangement. The result is that the business survives and in fact is generally much stronger for the future.

If proactive action is not taken soon enough, or if the situation is dire, we provide advice on the other options available, which could involve putting the business into liquidation.

What is most important to ensure the best possible outcome is to act early. If directors are concerned, they should immediately seek advice from their trusted advisors to determine if the situation is as serious as they fear – it may not be!

Worrells teams are always available at no cost to meet and discuss the options outlined above to ensure that any director is armed with all the information needed to make a fully informed decision that is right for them and their business.

Related article: What to expect when meeting with an insolvency practitioner

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

Sarah J. Greer