Hammersmith Chartered Accountants holds the belief that it is better and easier to forestall the deterioration of your business into liquidation or dissolution than rebuilding it from scratch to its old glory.
The most important aspect to keep a grip on your business and prevent it from degenerating is making sure that you lay the right foundations. In particular, you need to set the right control measures to point out the non-performing aspects. When you set up monitoring measures, you will detect when your business is beginning to experience pressure, even in the most subtle way. Once you detect distress signs early enough, you have a chance to prevent any further negative developments.
Dealing with Extremes
While it is always best to curb business deterioration early, we, at Hammersmith Chartered Accountants also understand that certain situations lead businesses to inevitably grind to a halt, or at least reach critical levels that threaten its survival. We believe that there are, still, many options to your business recovery and advise that you should not quickly rush to insolvency. You can, indeed reorganize your business and resume the profit path. Usually, when Hammersmith Chartered Accountants engages you for a full turn around, you will be required to fully reorganize your main business operations. One of the measures we recommend for your business recovery is setting up strict control measures to cut down on costs. You should also develop clear profit objectives. Still, Hammersmith Chartered Accountants understands that your business does not exist in isolation. We pay attention to a host of people and other entities that interact with your business including:
The shareholders are the mainstay of any business. You need the goodwill and consent of the shareholders if you are to implement any recommendations that drastically change the way you conduct your business. Some of the recovery measures may require financial approvals from such shareholders or even their direct contributions to raise the requisite resources to make the recovery a reality.
Needless to say, the directors of your business entity must be consulted and made to own any reforms deemed necessary for the recovery of your business outfit.
You need the managers to understand the need for change and own the change. It is the same managers that you expect to carry the message of change to the stakeholders under them. The managers are pivotal in the recovery path because they are the ones to communicate the principles behind the recovery design. Consequently, the employees, once they are well inducted, will find it easy to embrace change and run it through to the point of another review.
The employee is a key stakeholder that cannot be ignored in the process of change. When dealing with employees, you must also factor in the legal aspects and implications of certain critical business decisions. Since the ordinary employees are likely to be the first casualties in the process of cutting down costs, it would be prudent to consider other available options before you have to lay off part of your labor force. Apart from the touchy aspect of laying workers off, Hammersmith Chartered Accountants fully understands that your employees are the ones that will practically implement any changes meant for recovery. Change must be gradual. It must also be shared with the employees. The employee needs to own the change and share the aspirations of the owner. Once the change is part of everyone’s mission, it will enjoy support from every stakeholder. It should be noted that the employee is one of the most important stakeholders in the whole equation.
The customers must be cushioned from the surprises of change. The recovery strategy must pay full attention to the needs of the customer and forestall possible backlashes that the recommended change might lead to. The customer must be reassured of any services or products that may be subject to change. If your business reaches out to large masses, then it may be necessary to post advertisements that notify current and prospective customers of the impending change. The message must always carry a positive innuendo, in all cases. The customer must be assured of better quality and that any changes are aimed at providing them with improved services and products.
The path to recovery may also capture the supplier element. You may have to renegotiate with suppliers on aspects of cost-cutting. Indeed, you may also have to severe links with some suppliers and enlist others. You may also need to renegotiate any debts the business owes suppliers and others. Whichever way, you need to notify your suppliers of any changes that you adopt for the sake of your business recovery.
The Last Resort: Insolvency
If you have tried all other options but your business does not seem to recover, then you are still free to move it into the independent administration or file for insolvency. It may also be marked for receivership. Hammersmith Chartered Accountants has the expertise you need to execute any of the above moves. We shall guide you through all the stages and aspects, and most importantly, let you know what each of the options means to you and your business. In brief, the following is a summary of insolvency procedures, options, and requirements in the UK and Wales.
The Company Voluntary Arrangement
The CVA enables a company faced with financial challenges to get into an arrangement with its creditors on how the debts will be settled. The CVA rule in the UK requires that it is approved by 75% of the creditors attending the meeting. Once the CVA is in place, it is binding to all creditors.
The Company Scheme of Arrangement
The scheme of Arrangement is a flexible agreement between a spectrum of creditors and a company. It is useful to both insolvent and solvent firms. It is a compromise that groups creditors with similar characteristics such as level of debt, together. A scheme in the UK needs to be sanctioned by a court, for it to take effect. It should be noted that all creditors are bound by the scheme if they were classed in the actual meeting; even if they did not attend the meeting. With a scheme in place, the company retains its board of directors.
The Administration and Pre-pack
The administration gives a company a chance and room to reorganize. It also allows such a firm to recover its assets while it is protected by a statutory provision. An administration ordinarily lasts a year. It may, however, be extended if the court deems it fit. The administration document is designed to work in the best interest of all stakeholders, more so, the creditor segment. The administrator is required by law to report to the creditors within 8week, from the point of appointment, and share with the group how they intend to execute the administration. When a company secures administration, it installs a manager who is required to frequently report to the creditors regarding the progress of the recovery process. Of course, the central aim of an administration is to, among many other objectives,
- Help the firm recover, as a going concern
- Help the creditors recover their money, or at least a great percentage as opposed to if the firm is wound up.
- Realize property to sort out the preferential creditors
It should be noted that a pre-pack intends to sell as a sale or purchase part or whole of a company’s assets negotiated in the presence of the administration of the company. It is done at or after the appointment of the administrator in the insolvency process. A pre-pack is only used in certain situations when it is the best option for creditors and employees.
There are two types, i.e. fixed charge and administrative. The bottom-line in both is that a receiver works and acts to the mandate provided by the appointing authority, not creditors. Receivership is not as widely obligated to report to creditors as the case in administration. Lastly, receivership calls for no moratorium.
This article does not represent all the legal advice, view or information you would get from us. If you wish to know more about corporate recovery, Hammersmith Chartered Accountants is prepared to provide you with all you need to know, customized, and at no charge at all.