5 Facts You Must Know Before Entering Insolvency

With mounting debts accumulated through more than a year of pandemic lock-down, many business are facing the difficult decision of whether, or when, to appoint an insolvency practitioner.

If you’re in that situation, here are 5 important facts you should consider first. For many businesses we offer a simpler, faster and safer solution.

1. Insolvency Practitioners don’t work for you.

The insolvency business has got much better in recent years at presenting a friendly and even supportive demeanour to distressed business owners. But once they are inside your business and formally appointed, it’s important to understand that they have only 3 principal objectives, and none of them are for your personal benefit:

To find assets (including any business assets in your possession) that they can seize, sell or liquidate into cash for the benefit of creditors
To uncover any wrongdoing on the part of Directors potentially leading to the recovery of costs, fines, disqualification or even conviction
To generate profits for themselves by charging fees to any recovered amounts, often leaving little or nothing behind for creditors

2. Insolvency will stay with you.

Even after the initial months of meetings, interviews and stress are completed, the impact of insolvency will not be over. As a Director of a company that becomes insolvent there will be a permanent record against your name. This may exclude you, or any future business you are associated with, from bidding for certain contracts and you may find that future business insurance costs are significantly increased.

3. It can be hard to start again.

Although Insolvency Practitioners may hint that you might be able to buy some of the assets out of the insolvent business and start again, this is by no means guaranteed. The government has clamped down hard on ‘Phoenixism’ (the process of going insolvent and starting up again in essentially the same business) over the past few years and you are likely to face significant legal barriers.

4. VAT debts can cause problems

Many Directors don’t realise that their VAT registration (and permission to register in future) is tied closely to the track record of the individual Director. Leaving behind a large VAT debt could make it harder to apply for VAT registration in the future and HMRC may even require you to deposit a large sum of money with them before doing so, potentially crippling your cash flow.

5. Reputation matters.

There should be no shame in having a business venture fail, especially after the extraordinary economic circumstances of recent years. But whether we like it or not, reputation matters. Being directly associated with a business failure could have a significant negative impact on you. If you’re planning on getting a job you may find your employment prospects have been damaged. If you’re planning on starting up in business again the insolvency may affect employees’ willingness to work for you, your ability to gain credit, or even the willingness of suppliers to trade with you at all. It could even impact the way friends and family see you or treat you.

Given all of these challenges, you may be relieved to discover that there’s a simple and effective alternative which avoids many of the problems of Insolvency. Instead of folding your business, wouldn’t you rather tell the world you’ve sold it?

Through our panel of buyers, we are able to broker a sale for 97% of businesses who complete our Eligibility Checker, even those with substantial debts and limited assets, and sales can be completed in as little as 24hrs.