Solutions for profitable but insolvent companies

If you’re the director of an insolvent but profitable company, now is the perfect time to consider your options. Why? Because the Government recently lifted restrictions placed on the insolvency regime to combat the economic fallout from Covid-19.

Over the past two years, a lot of companies used these restrictions to stay profitable by avoiding payments to creditors. However, companies must pay debts now the Government’s temporary measures are no longer in effect.

A company with no cash reserves to pay its creditors will have to consider entering a statutory insolvency procedure. Subsequently, you can expect a record number of companies to enter statutory insolvency procedures in the latter half of 2022.

Statutory insolvency solutions

Procedures such as company voluntary arrangement (CVA), administration, and liquidation will become increasingly attractive to a company director looking to:

• Develop a long-term business rescue strategy
• Pay creditors that were ignored while the Government’s Corporate Insolvency and Governance Act 2020 restrictions were in place

The protection many companies enjoyed over the past two years has gone. Now is a time to trade with caution. With this in mind, it’s important to remember:

1. The taxman is a priority. HMRC issued more than 50% of all company winding-up petitions in 2018/19. That year, the agency’s petitions led to the closure of more than 4,000 UK businesses
2. You could be prosecuted and disqualified as a director for any act of wrongdoing you committed during the pandemic if your company enters liquidation. Liquidators must report all evidence of director misconduct to the Insolvency Service who’ll investigate with a view to disqualify

Director misconduct

A licensed insolvency practitioner (IP) acting as administrator (in administrations) or liquidator (in liquidations) may report a director for misconduct. However, the directors of companies in liquidation are responsible for the vast majority of misconduct investigations.

In March, the Insolvency Service instructed IPs to target directors who abused Bounce Back Loans. As a result, it’s probably best to avoid direct contact with an IP unless you’re 100% sure that:

• You’ve committed no acts of misfeasance
• You obtained, spent, and repaid any Bounce Back Loan(s) correctly

Do you need private and impartial guidance on insolvency, misconduct, or Director Disqualification Proceedings? Contact independent professionals such as Insolvency & Law on 020 7504 1300.

Learn how to protect your interests in insolvencies and defend allegations of misconduct and Director Disqualification Proceedings…