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Dealing with Limited Company Debts

If you’re a small business owner that is facing debt, saving your business from liquidation can be challenging.  Your company can be wound up if it can’t pay its debts and your creditors (whether they are people or organisations that you owe money to) can apply to the courts to get their debts paid.  This can be done by making an official request for payment, known as a statutory demand or by getting a court judgement.  Before things get worse, it’s worth getting professional advice from a solicitor or insolvency practitioner. 

If a creditor secures a court judgement against you, you have 14 days in which to respond.  There are some choices available to you here:

  • You can pay the debt if you’re able to
  • You may reach an agreement with the creditor to pay the debt at a future date by using a Company Voluntary Arrangement
  • You can put your company into administration
  • You may apply to liquidate your company yourself
  • You have the right to challenge the court judgement

Obviously, if you want to stay in business, you should pay the debt or reach an agreement with the creditor.  Reaching an agreement could mean arranging to pay off the debt in regular instalments by a specific date that is mutually agreeable. 

A Company Voluntary Arrangement (CVA) can only be obtained via an insolvency practitioner who will charge you to apply for the CVA and to administer it.  An insolvency practitioner (IP) is somebody who is licensed and authorised to act in relation to an insolvent individual, company or partnership.  Most insolvency practitioners are accountants or insolvency specialists working in accountancy companies.  Insolvency practitioners must adhere to the law and their work is monitored by regulators to ensure that they do.  The largest regulator of insolvency practitioners in the UK is ICAEW (Institute of Chartered Accountants in England and Wales) which was founded in 1880 and has around 150,000 members, 10% of whom live and work outside the UK. 

If at all possible, an insolvency practitioner will collaborate with you in order to find a solution that will rescue your business and avoid insolvency.  If that’s not possible, the insolvency practitioner will aim to:

  • Sell the assets of the person or company who owes money
  • Collect monies due to the person or company
  • Agree claims from creditors
  • Distribute the money collected after paying costs.

An insolvency practitioner deals with many competing interests but their main duty is to look after the interests of creditors, though they will not agree the claims until they are sure that funds will be available.  In many cases, an insolvency practitioner will give immediate advice to the debtor before the formal insolvency process begins. 

Whatever the reason for your debts (small companies very often fall into debt as a result of cash flow challenges that arise from doing business with larger companies who may be slow to pay), delaying dealing with them will just make matters worse, so being proactive is the best way to rescue your business and avoid insolvency.