When directors consider that the financial position of a company is worsening, a conversation with an insolvency practitioner as soon as possible will maximise the options for the company.

As a starting point, we will ask to review up-to-date management accounts to gain an understanding of how the company operates, which may also involve a conversation with the company’s accountant and/or solicitor.

Although issues specific to the company will be discussed the general information that is considered in these initial meetings include:

• Key customer considerations and trading implications – Sometimes it is acceptable to “trade on” where the completion of a piece of work is profitable.
• Premises – If rented, what are the terms of the lease, are there rent arrears and break clauses, what are the landlord’s rights under the lease and are they supportive of ongoing trade?
• Secured borrowings/finance agreements – A creditor with a fixed charge over assets has the right to receive the funds from the sale of the charged asset, less the agreed costs of sale. Leased assets could be returned to the provider whereas an asset on Hire Purchase may have equity which can be released on sale.
• Retention of title assets – These will have a clause in the contract between the buyer and the seller, where the seller retains legal ownership of the goods until certain obligations are met by the buyer. These are often overlooked by the buyer who considers the stock held to be fully owned.
• Book debts – Are they factored, or invoice discounted and if so on what terms? This can have a significant impact on the balance sheet and therefore it is imperative that the type of book debt financing, if any, is fully understood.
• Directors’ intentions – Do the directors have the appetite for, and consider that, there is a business worth saving? Could a sale of the business be completed before the company runs out of funds or is the business in a terminal position with a shutdown being the only option?
• Employee considerations – What would the consultation period be, would staff remain loyal and support a restructuring process?
• Directors’ obligations and risks – These will be discussed which will include the directors’ balancing of the duties towards the creditors and shareholders, the pitfalls of antecedent transactions (including preference payments and transactions at undervalue), drawing of dividends and personal guarantees given.

If you would like to learn more about our insolvency and restructuring services, please contact us.