Businesses aren’t out of the woods yet in terms of financial security. Corporate insolvencies are down, but this might only be storing up problems for later. If your business is struggling financially, what should you do to try and keep the company running?
Throughout the last few years of economic difficulty the number of company insolvencies has remained remarkably low. Given the depths of the recession – the deepest for generations – the assumptions of some sort of “insolvency boom” seem to have been misplaced.
Some people like Mr Allan Jeffrey Court. Mr Court was a director of Project Two Services Limited, which went into administration in 2004. In November 2006, he was disqualified from acting as a director of a company for a period of 3 years and 6 months. At the same time he formally resigned as a director of another company in which he was involved, Ducal Building Services Limited.
It pretty well goes without saying that, especially where small companies are concerned, and lender will insist on personal guarantees from the directors. No-one ever gave a guarantee expecting it to be called up, so when things do go wrong directors are often exposed in ways they never envisaged when they formed a “limited” company. And their surprise is all the greater when they had resigned from the company some time before the failure.
Section 388 of the Companies Act 2006 requires company directors to ensure that their companies maintain accounting records which explain each company’s transactions and disclose with reasonable accuracy at any time the company’s financial position. They must also preserve those records for a period of time, which varies depending on whether the company is a private company or a public company. Failure to keep and preserve records as required is a criminal offence.
In every company insolvency (administration or insolvent company liquidation), the insolvency practitioner’s statutory duties include submitting a report to the Department of Business (BIS) on the directors’ conduct. The purpose of the report is to enable the Secretary of State to decide whether the director is fit to be allowed to act in the management of a company, or whether they should be disqualified for a period of time.
Is your business under pressure? It’s hardly surprising given the tough few years that we’ve had that, according to a recent report in The Daily Telegraph, a quarter of SMEs have insufficient funds to meet their short term debts. Perhaps, having been punished during the recession, you feel you’ve lost the energy, and don’t have the skills to put the business back on its feet.
My biggest customer’s gone bust owing me a lot of money. Now my business can’t meet its own debts and the taxman’s threatening to wind the company up. The business is sound but can’t carry on with its existing liabilities. It needs a clean break and a fresh start. I’ve heard about “pre-packs”. What are they all about?