Saving Your Home Business and Preserving Assets with a CVA, Administration, or Pre-Pack Administration

home business debtAs a home business owner and entrepreneur, you’ve probably had to do some creative thinking to start your own company – so why not exercise some creativity in bringing about a recovery when debt becomes an overwhelming burden. Unfortunately, most home business owners wait until their just about to be brought to Court by a creditor before they decide to take action and examine their options. The trouble is, that could be too late.

Before you get that far down the process, you should look for a solution.  Three applicable solutions that are rarely considered are:

 

1. Renegotiating Debts with a Company Voluntary Arrangement (CVA)

Usually the best way to avoid going out of business is to satisfy the creditors who are applying the most pressure. However, when you don’t have the money to repay as much as creditors are requesting the only option is to negotiate for a lower monthly payment. A CVA is a formal agreement between your home business and it’s creditors and/or contributories (i.e. – employees and suppliers) which, if approved, will give you revised repayment terms that may provide the leniency needed to get back on track. In addition, a CVA could help you eliminate or revise employee or supplier contracts in order to reduce overhead and payroll expenses.

 

2. Facilitating a Turnaround With an Administration Procedure

If creditors are threatening to put you out of business by way of a winding up petition and you have no way to satisfy their demands the only way to stop them from taking legal action against your company may be to apply for an administration order. If the order is granted it would halt any legal actions being taken by creditors and prevent all creditors from being able to take legal action during the administration procedure. In administration you would appoint an insolvency practitioner to act as the administrator (temporary CEO) of your business with the goal of facilitating a turnaround at the hands of a professional. The administrator could use a variety of tactics to satisfy the demands of your company’s creditors, including but not limited to attempting a CVA, selling assets, or using assets as collateral to obtain financing.

 

Preserving Company Assets with a Pre-Pack Administration

If there seems to be no way to save your home business from bankruptcy and liquidation then the only option you may have left is to attempt to preserve some of the assets by arranging a pre-pack administration sale. In a pre-pack administration one or more of your company directors (i.e. – you) could purchase some of the assets of the business during a liquidation sale. These assets could then be transferred to a newly formed company that is commonly referred to as a “phoenix” company. While a pre-pack administration would technically not allow you to save your home business because the company itself would be dissolved, it does give you the opportunity to preserve some of the assets that you’ve acquired through all your hard work.

 

Regardless of which one of the above solutions you choose to utilise it should be noted that time is definitely of the essence when it comes to saving your home business. Procrastination will only put you in further in debt and the more indebted your business is the harder it will be to attempt negotiations or apply for any form of financing.

 

About Mohit Tater

Mohit is the co-founder and editor of Entrepreneurship Life, a place where entrepreneurs, start-ups, and business owners can find wide ranging information, advice, resources, and tools for starting, running, and growing their businesses.

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