Are you worried about insolvency? Bite the CVL bullet, and stop putting the good money after the bad

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We are seeing an increase in CVLs related to the IR35 reform and frankly, how could anyone really be surprised, writes John Bell, director of the Clarke Bell insolvency firm.

A hard blow, at least

In fact, these 12 months have been chaotic for the subcontractors of the limited liability companies who have spent the period dealing with a number of challenges, Covid and the head of the paid vacation legislation. The “double whammy”. In addition, to hit them while they are against, there have also been effects of Brexit.

So we know that many subcontractors have seen their business decrease and, even worse in some cases, they haven’t seen any work at all, due to suspended contracts as hires similarly grapple with the pandemic. and the new off-payroll legislation.

Even entrepreneurs who were lucky enough to secure contracts can now face late payments which, for a one-man business, can strain a limited liability company’s bank account and cash flow.

Debt to stay alive? The government was there to oblige

Could it be worse? Yes indeed, because let’s not forget that government initiatives to help weather the pandemic have done little to respond to the entrepreneurs of limited companies. The result is that many administrators have been forced to take out government guaranteed loans, through the Coronavirus Business Interruption Loan Scheme (CBILS) or the Bounce Back Loan Scheme. They took on debt to help support their business during the pandemic, or just to keep their business lights on.

In a positive way, these loans have helped incorporated businesses that were doing well before the coronavirus hit. But since May, the repayments of these loans are due. Some entrepreneurs are now struggling to repay their loans and, if they have no work or money to come, insolvency is upon them.

But this not insignificant number of affected entrepreneurs should not despair. Like them, if your PSC is insolvent, a voluntary liquidation of creditors (CVS) is often the best solution to face the debts of the company and fulfill its legal obligations as a company director.

Benefits of a CVL

Using a CVL has several advantages for business leaders and their creditors:

  • This is a good option for administrators who want to take control of their situation and act before things get worse for their business;
  • As part of a voluntary process, administrators are free to choose the insolvency practitioner (IP) they designate to perform the CVL (as opposed to a forced liquidation);
  • The manager can close his business and has the option of opening another business in the future;
  • By opting for a CVL, directors can prevent their company from being forced into compulsory liquidation, which is the most serious form of liquidation.

Talking should be cheap, or ideally free

First and foremost, when insolvency looms, you should contact a IP, for free and confidential advice. See if a CVL is the best option for you and your business. A good IP address will tell you (without charging for the privilege!) If there is a better option for your particular situation.

Currently, a common scenario is that entrepreneurs have an overdraft manager’s loan account, which is money they have borrowed from the business. It is money that must be repaid to the company. Your PI will help you with this reimbursement, to ensure that your obligations are met.

Assuming that a CVL is the right solution for you, a proper IP will work with you (and your accountant if applicable) to collect all the information needed to proceed with the liquidation. They will seek to compile a complete list of your creditors, as well as copies of your business accounts. But be aware that as soon as the CVL process starts, your business will have to shut down.

What entrepreneurs should expect from an IP (continued)

However, you will not be alone, as your IP address will guide you step by step through the process, including all the necessary documents.

While you may not be thrilled with these activities, doing nothing is not an option when running a business that is struggling financially. As a business owner, you have a legal obligation to do something about your insolvent business. And remember, the head in the sand approach is no longer viable with the “illicit trade” rules back in place since they were interrupted during the covid peak.

Good money after bad? Put an end to it

So the sooner you get professional advice if your limited company cannot get rid of its distress, the more options you are likely to have. Rest assured, you can get free, confidential face-to-face advice from an insolvency counselor, at least initially. If you’re not convinced, just ask around – many company managers and PSC contractors are currently saying they wish they had IP much sooner than they did. If they had, they wouldn’t have put “the good money after the bad”, potentially saving them months of unnecessary stress and sleepless nights. And sadly, these are not lacking with much of the perfect storm of Brexit, covid and IR35 reform still rumbling.

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