Are creditors applying pressure?
Options and procedures for dealing with creditor pressure
This section deals with general creditor pressure, if it is HMRC who are applying pressure, please see our dedicated page on that subject.
The first step when creditors are chasing you or your company, is to talk to them about it. Many organisations offer informal repayment plans, relief periods and may even voluntarily discount your bill depending on the situation. Talk to them and see if there is a deal to be made, legal proceedings cost them money as well, and they might prefer to avoid it.
Limited Company Creditor Pressure
If you have a limited company that is in financial trouble, there are a few formal options that may help (this section only covers the ones you can initiate yourself), however the first step is always to try and negotiate an informal deal with your creditors.
Company Voluntary Arrangement (CVA) - Similar to an IVA, this is a legal agreement between the directors and shareholders of your company and your creditors, mediated by an Insolvency Practitioner, to repay the debt to the best of the company's ability over an agreed time period, which is usually three to five years. Please see our section on CVAs for more information.
Administration - An administration places Licensed Insolvency Practitioners (IPs, such as Purnells) in charge of your company whilst freezing it's debts, in order to establish whether the recovery of the business as a going concern is possible, or whether is needs to be wound down whilst satisfying government and creditor obligations. Administrations can often lead to additional processes, such as a CVA (recovery) or CVL. The administration itself is about gaining a breathing space to work with a Licensed Insolvency Practitioner to evaluate the company and establish the available options. Please see our section on administration for more information.
Company Voluntary Liquidation (CVL) - If the company itself cannot be rescued then closing it down and liquidating it's assets may be the best option available. However whilst it is not always possible to save the company, it may be possible to save the underlying business by having a phoenix company. A CVL is initiated by the directors and shareholders of the company to appoint a Licensed Insolvency Practitioner (such as Purnells) to handle the process. Please see our section on CVLs for more information.
Personal / Sole Trader Creditor Pressure
If you are being personally chased by creditors, you have 3 primary options:
Debt Relief Order (DRO) - this process is essentially a quick and cheaper version of bankruptcy provided that you have limited assets (less than £1000 worth) and very restricted "surplus" income (less than £50pm after essentials), and debts of below £20,000
Individual Voluntary Arrangement (IVA) - this is a legal agreement between you and your creditors, mediated by an Insolvency Practitioner, to repay your debts to the best of your ability over an agreed time period, which is typically five years. An IVA also may or may not include a reduction in the overall debt (eg a 50% final repayment) subject to creditor approval Please see our section on IVAs for more information.
Bankruptcy - If you have no realistic way to repay your debts, even over an extended time period, or if an IVA is unsuitable (or has already failed) for your situation, bankruptcy may be necessary. This process liquidates your available assets (subject to restrictions and allowances) and provides your creditors with some return on the debt. After your assets have been liquidated, the remainder of the unsettled debt is written off by your creditors. Please see our section on bankruptcy for more information.
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