Avoid Liquidation Of Insolvent Businesses
Stop. Before you appoint a liquidator, consider a legal alternative that can provide
real future value for shareholders. It is illegal for directors to continue trading whilst insolvent, but it is not illegal, rather it is encouraged, to seek and pay for advice. That advice can come from specialist turnaround managers who are expert at business restructuring and reaching agreement with creditors in a way that allows the business to go forward in a restructured form.The answer to the question, 'why is it that more directors do not seek to restructure and rescue at least part of their business,' is probably not a simple one. Mostly, it is ignorance of the existence of that option and the advice which is given by the usual business advisors of, bank, accountant, lawyer, and insolvency practitioner. These all have a vested interest in the company being liquidated and no incentive to look after shareholder interests. In fact, on the contrary they mostly stand to gain more from the company liquidation. For many, the events that have led to difficulty and the grind of attempting to deal with it is all too much and they simply need a break and almost welcome the end. It can be a very lonely place and emotionally as well as physically draining.
It is common for business owners to be unable of seeing how it might be that a specialist turnaround firm can help. The first advantage is that a fresh pair of eyes will see things that someone who is too close can no longer see, that is particularly true of those with wide experience on analysing exactly what goes wrong in businesses. Next, the emotional detachment of a turnaround manager allows both, 'sacred cows' to be sacrificed when sensible to do so and creditors to be approached with a pragmatic proposal for write-off. Creditors who would find it difficult to receive a proposal from the business in difficulty are receptive to a third party who can point out that success means a better total receipt for past debt and a customer into the future.
Of course, it is rare for a business to continue at the same scale and with similar overheads. However, it is quite common to find a thriving and profitable company within a year of what would otherwise have been its liquidation hearing. This outcome offers the prospect of future earnings and value in the shares.
An online search for term 'business rescue turnaround guide' will provide readers with a choice of several very helpful resources that describe both the responsibility of directors facing insolvency and the ways in which turnaround management practices can help struggling businesses to return to a viable and growing pattern of trade. The TMA, Turnaround Management Association, is another excellent source of advice for shareholders of a business in difficulty.
It is not necessary to wait until a business is actually insolvent to seek help, it is much better to recognise the deteriorating position and seek help early. Managing a business in financial difficulty is a miserable and highly stressful activity that can leave directors exhausted and at risk of damage to their health. The business paramedics might just prevent the medical ones arriving at the directors home.
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