Meeting the challenges of businesses in financial distress

Meeting the challenges of businesses in financial distress

The cost of living crisis is having serious repercussions for UK businesses. It’s not just households that are feeling the squeeze, as utility costs spiral and small businesses in particular struggle to keep afloat. With tighter household budgets, consumers have reduced their discretionary spending taking money out of the economy.

In practical terms, this means that businesses are finding less demand for their goods and services.

Bankruptcies and insolvencies are on the rise

There is now a growing fear that 2023 could see a wave of company insolvencies and personal bankruptcies as the cost of living crisis shows little sign of abating. High costs, ongoing debt and consumer confidence at rock bottom are all creating a perfect storm for businesses. It will take careful financial planning and sure management for many businesses to weather this particular storm.

Challenging financial times have always been part of the economic landscape. The companies and individuals that have survived these periods have often faced severe financial distress, but short-term difficulties need not lead to company insolvency or personal bankruptcy.

What are the options?

If your company is facing severe financial problems and is no longer able to meet its financial obligations to suppliers and other creditors, then it’s important to take action. Companies have a range of options, some of which have a significant impact on how they operate. In some cases, restructuring debt and talking to creditors can result in more time and flexibility in how debt is repaid.

Companies that continue to be unable to meet their financial obligations may ultimately be subject to insolvency such as liquidation compulsory or voluntary , or recovery procedures or Administration . While the former brings the company’s activities to a close, the latter can be used to restructure the company to enable it to continue trading.

There are number of options available to individuals facing bankruptcy other than bankruptcy such as mortgage / remortgage involving equity release to pay off debts, refinance / consolidation of debt, informal settlement of debts, Debt Management, Voluntary arrangement, Debt Relief Order. Each one of these options have advantages and disadvantages which ought to be discussed with the legal advisers.

Winding up a company

A company’s trading can be brought to a close through liquidation which can be compulsory or voluntary. Let’s explore the differences between the two.

Compulsory liquidation

The Court orders a company’s liquidation after receiving a winding up petition from a relevant party, resulting in a liquidator being assigned to sell and distribute the company’s assets to benefit creditors. The Court must be satisfied the company cannot pay its debts when they fall due or that it’s fair to liquidate. Parties eligible to winding up petition in the court include creditors, directors, members of the company if they have interest in winding up of the company and the Secretary of State.

Voluntary liquidation

. There are two forms of voluntary liquidation based on the directors’ solvency statement: members’ voluntary liquidation (for solvent companies) and creditors’ voluntary liquidation (for insolvent companies). The liquidation stops the company’s operations and a liquidator is appointed to distribute its assets for the benefit of creditors.

Recovering the business

A company in severe financial distress may be recoverable. The two principal methods through which this is achieved are through administration or a Company Voluntary Agreement (CVA).


Administration may be an option where creditors may secure a better outcome than following liquidation or the company can be rescued as a going concern entity. In these instances, an administrator is appointed to the company with the goal of saving the company as a running entity..

The aim of administration is to give the company a temporary period of rescue or restructuring, with the administrator in charge of managing the company’s operations towards achieving a set of stated objectives.

Company Voluntary Agreement (CVA)

A Company Voluntary Agreement (CVA) is a formal agreement between a company and its creditors regarding its debts. The agreement may include restructuring the debts owed, within specific rules. Approval from a majority of creditors is required to implement the CVA. Once this has been approved, all creditors except for dissenting secured and preferential creditors are bound by its terms and a supervisor is appointed to control the company’s assets.

How Murria can help

If your business or individual is facing financial difficulties, it’s important to remain calm and take a realistic approach to your options.

At Murria Solicitors, our commercial team is equipped with comprehensive knowledge of insolvency and have contact with various licensed insolvency practitioners. We are able to provide advice to both individuals and corporations on the consequences of personal bankruptcy and directors personal liabilities and possible disqualifications to act again as director of the limited company in company’s insolvency.

Our approach to individual clients is both practical and empathetic, as we guide them in managing their creditors. We are well-versed in the latest insolvency laws and can advise on alternative options to bankruptcy and insolvency for both individuals and companies.

Don’t let your business financial difficulties get out of hand. Call 0333 800 0033 or email law@murria.co.uk for confidential advice.

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