Money Monday: Dealing with your Business Debts

A business debt is money that your business owes to others but, if you’re a sole trader, the law shows no difference between your money and the money of your business. There isn’t any legal difference between you and your business. 

Limited companies should benefit from the legal separation provided by a Ltd company heading, allowing debts to belong to the company and not the individual.

There are many different types of business debts. Underneath, we have compiled a list of some common ones that you may come across. 

Business rates
We can help you if you are unable to pay business rates. 

Bills
Some businesses might be struggling with their gas or electricity bills. 

Bounce Back Loans
The Bounce Back Loan scheme was offered to businesses during the coronavirus pandemic but it has left many business owners struggling with the repayments. 

Construction Industry Scheme (CIS)
We can help people within the CIS group. 

Council tax arrears
We can help you to address unpaid council tax payments. 

Property Leases (Commercial)
Businesses need to look at the small print before agreeing to terms and conditions. We can help you.

Hire Purchase issues
If you cannot keep up with your hire purchase payments, you could be risking repossession. We will be able to work out a solution for you. 

HMRC Arrears
We can help you negotiate with HMRC when it comes to falling behind on payments. 

Income tax
We can help you to work out an outstanding tax debt and how to make any repayments. 

Pub owners
We can help owners of a pub with tenancies, alcohol costs, and potentially leaving your pub. 

Setting up a business can involve significant expenses, for start-up costs, equipment and work space. And sometimes, these are necessary debts, taken on in the hope that revenue will soon become enough to cover the debt early on. Unfortunately, sometimes it isn’t always just that easy.

It can take time for businesses to grow, develop, and make profit, which can often leave people with no choice but to turn to other forms of debt to help them get by.

However, if you do end up struggling to manage your business debt and become insolvent, it is then illegal for you to continue trading and your business may result in bankruptcy.

We have listed a number of recommendations to directors, down below.

Speak to your creditors

Ask any creditors about spreading out your repayments or ways to work around your cash flow issues in order to help you until you can get back on your feet. If you keep them up to date with your situation, they’ll be more willing to work with you.

Oftentimes, creditors can be understanding about your situation and they may allow you to spread out your repayments until you can get back on your feet. If you are open and honest with them about your situation, they will then be more willing to work along with you and give you some leeway.

Reduce your overheads

Just small and simple changes to your overheads can make a big impact on helping you manage your finances.

Sell non-essential company assets

If something isn’t essential to your business but it still costs you money to own and operate, it might be worth selling. This can help you free up some extra cash which can then help go towards your repayments.

Underneath are some solutions that you could choose to use for your business debt. 

Company Voluntary Liquidation

• The most common liquidation process for companies that are experiencing financial difficulty from which they cannot recover.
• Fees can vary depending on the circumstances of the business.
• A CVL can only be created under the assistance of a licensed Insolvency Practitioner.
• It takes 14 days to put a company into a CVL.
• If 90% of shareholders agree to a short notice, liquidation can happen in half of that time (7 days).
• A CLV cannot be reversed once it has been started.

Administration 

• The process that involves the management of an insolvent, or going to be insolvent, company that is being given a licenced insolvency practitioner acting as an administrator.
• A company is granted a moratorium when it is in administration.
• Nobody is allowed to take possession of company property without the administrator’s permission.
• A company can be put into administration in two ways: through voluntary measures or through the pressure of exterior secured lenders.

Company Voluntary Arrangement 

• This is used in cases where the company is currently in trouble, but appears to be viable and could well become profitable again.
• Legal action cannot be taken by creditors in a CVA.
• All payments to creditors will be centralised into a single monthly payment
• Once your Company Voluntary Arrangement is in place, your creditors can no longer add further interest or charges to any of your accounts covered by the agreement.
• Company directors and shareholders do not lose control of the business.
• Can stop a winding up petition from becoming successful.

Members Voluntary Liquidation

• A Members Voluntary Liquidation (MVL) is for solvent companies that want to bring their business to a close.
• Putting a business into an MVL allows a company to extract proceeds in a tax-efficient and cost-effective way
• You must sign a declaration of solvency that demonstrates that the company is solvent and able to pay all of its outstanding creditors.
• It also allows the business to be wound down in a calm manner.

Strike off and dissolution 

• Over half of those directors need to sign the application before it can be processed.
• If there is no opposition to the strike off, the company will be struck off the register once a 2 month notice has been passed.
• Any late filing penalties to Companies House can usually be cast aside after the dissolution of your business. 
• You can withdraw your application if your company is no longer able to be struck off. 

We will provide more information on these solutions over Debt Awareness Week. 

You are entitled to free money advice. By using our services, we can help you see all of the debt solution options that are available to you. Our services are completely free, impartial and confidential.