In Reply to: Indojet responses. posted by Baldie on Tuesday, 2. June 2009 at 11:20 Bali Time:
Home Companies Your Options Trading Out FAQs Trading Out - Frequently Asked Questions
Q: The company is struggling, but not that insolvent, can I safely trade out by cutting staff and overheads?
A: It is important that you read and understand Insolvent? before going further. Even if the company is insolvent that does not mean a formal insolvency action is the right way forward. If you can produce a recovery plan that is achievable and that maximises creditors interests, then this can be a good way forward. Many thousands of businesses do this every year and recover well. Our advice is to produce your plan, discuss it with your senior people and then embrace it. During the course of the recovery stage, constantly review the process, minute your meetings and compile information as to your actions. In the future if the plan does not work this helps defend your actions.
In our experience making honest mistakes whilst trading out can be easily rationalised after the event if this information is to hand. But, merely verbally stating that it seemed a good idea at the time does not convey a sense of prudent and diligent actions having been taken. In other words cover yourself in case the plan fails.
Q: How can I go about cutting employees when we cannot afford the redundancy payments?
A: Consider contacting the Department of Employment. Under the hardship scheme the company may be able to (provided conditions are met of course) borrow the redundancy payments if it can demonstrate an inability to meet the payments.
Q: What happens if the trading out plan does not work
A: Consider the facts regularly, if the plan is clearly not working then take advice from a turnaround practitioner or your professional advisors. Look at all the other options on this site and or email us.
Q: I have got most of my creditors to agree to a deal over time, but one large creditor insists I pay them in full before supplying any more goods. They are critical to my future survival - what do I do?
A: A common question that companies under pressure face. This is a technically difficult situation and one that needs specific turnaround or insolvency advice. (Email us)
Generally, the technical answer is that you may not prefer (put the creditor in a better position that it would otherwise have been but for your insolvency) a creditor. If the company eventually went into liquidation such transactions can be reversed by a liquidator / court process. However the pragmatic answer is - if payment to that creditor, at the same time as doing a longer term payment deal with others, ensures the overall survival of the business then that is a correct decision to take. If the overall plan MAXIMISES THE INTEREST OF ALL CREDITORS then it is a logical step to take. Be sure as ever to note this at a management or board meeting in case the plan does not work.
Q: It has got to be better to struggle on with an informal deal than to go into a CVA?
A: Actually often it is the opposite! The CVA mechanism is also a very powerful corporate finance tool, it draws a line in the sand with all unsecured creditors and allows all creditors time to consider and vote upon a restructure if necessary. Allied to the ability to remove from leases and reduce employee numbers it is a very far-reaching tool. Of course it also mitigates wrongful trading issues and allows director to focus on running the business.
Q: Why not just wait and see?
A: You have a duty of care to creditors if your company is insolvent. Failure to take action can be construed as badly as acting wrongfully. In any case procrastination and inaction are always in the list of causes of failure cited by liquidators