Five Intriguing Insights Into Insolvency

In this article, I will explain some of the misconceptions around insolvency. I'd like you to be more prepared should you start facing financial difficulties. Even better if we can help you avoid the crisis altogether.

Before we start busting some myths, I'd like to touch on a crucial topic first.

Space" and "Stay Home, Protect the NHS, Save Lives". These have become institutionally recognisable statuses over the past year.

By following these COVID-19 guidelines, I have done what I can to help with the battle against one pandemic. I realised I can also help with the struggle against the second pandemic too. By giving some real advice and support to business owners who have had the rug pulled out from under them.

Liquidating a company can affect a person's mental health. Even worrying about the prospect of insolvency is enough for most of us. Clients tell me how they've had sleepless nights, anxiety attacks and other personal issues because of their business potentially failing or the mere uncertainty about everything.

This is also been founded in research undertaken by iwoca and charity Mental Health UK. In early 2021, they provided alarming insight into how small business owners were feeling, with 80% experiencing symptoms of poor mental health.

So, one simple thing I can do immediately is to dispel some of the myths around insolvency. This brings me to why I wrote this article. My inbox and phone are always open to any business owner struggling right now with any aspect of their business, especially if it's impacting their mental health. Let's talk through it and understand the options available. Sharing the burden with an expert who will listen and have some answers goes a long way to easing those worries.

WRONG... BUT MAKE SURE ALL OPTIONS HAVE BEEN EXPLORED FIRST: When faced with insolvency, many business owners develop tunnel vision. A biased expert has said that their business needs 'wrapping up', and this becomes the only inevitable outcome which they can see. But think about this. You have spent years of your life dedicated to making your business a success. Is it really worth throwing all that away without at least putting up a bit of a fight first?

I have worked with businesses in the past facing this exact situation. Rather than throwing in the towel, they decided to pick themselves up off the mat and do something about it. For the majority of these businesses, we have found a positive way forward.

Of course, for some businesses, there isn't always a way to avoid insolvency. At least these organisations can say they have tried everything to tackle the situation. These business owners haven't lost their house. They haven't lost their life savings. They are comfortable that insolvency is the right option for them. And they have learned from the experience. They are now taking the first steps to a brighter future with my help and support.

WRONG:
Indeed, an Insolvency Practitioner's role is to review and highlight what has happened to your business. By law, they have to investigate what has happened up to this point. They may well look back and say "You shouldn't have done this" or "This was a poor decision", which is their job to do.

What Insolvency Practitioners aren't allowed to do is help with advice or business planning going forward. In any way.

I've seen how emotional it is for business owners to deal with Insolvency Practitioners. The whole process seems to highlight problems but not to produce solutions. Whilst an Insolvency Practioner is focusing on the past; you can't afford to do so. You may have lost a limited company, but you still have a business. You have to try and take the emotion out of the situation and move past it.

This was one of the reasons why I switched sides. I set up Laurus Business Advisory Services to provide expert advice for Directors in these situations. Standing by my clients to ensure they are treated fairly. My presence takes the emotion out of the problem as we explore options and the next steps to move forward. Insolvency practitioners first and foremost duty is actually to your creditors. My first and foremost duty is to help you.

Here's a simple analogy:

To drive a car, you need first to learn the ropes. You need to know how the different functions and processes with driving work. You need to sit a test on hazard perceptions and prove you understand the Highway Code. You need to pass your actual driving test before you can get behind the wheel of a car on your own.

To drive a business, you don't need a thing. You can become a Director of a company tomorrow without any experience in the role. But if the business fails, where does that leave you? A worrying realisation, isn't it!

This is one of the reasons why there are business mentors. A mentor can help you no matter where you are on your business journey. Whether you are new to the game. Need support to reach the next level. Or want to improve your work-life balance by working smarter, not working harder.

WRONG:

I've seen businesses appointing Directors who have no need to be there. Family businesses are a particular culprit.

The issue with appointing unsuitable Directors to your company is that they will be scrutinised and personally liable for business losses if the worst happened.

So, although Grandad may have founded the company 60 years ago, keeping him on as a Director of the company could actually put him in an unenviable position. If the business ends up insolvent, the courts can begin to look for means to settle outstanding debts, which may mean knocking at Grandad’s door.

Ensure that the Directors you are appointing to your business understand the commitment of their role and can bring value to you and your organisation.

CORRECT... BUT THERE ARE WAYS TO MINIMISE THE IMPACT:

No matter how hard you try to save your business, unfortunately, sometimes insolvency will be inevitable. But, you can put measures in place to minimise the impact insolvency has on your income. Whilst potentially safeguarding other "less volatile" areas of your organisation.

Let's say you run a business that delivers more than one service. You might produce uniforms for healthcare professionals and also merchandise for live shows across the UK. In this example, you could separate these two services into two different companies. We'll call them "Company Health" and "Company Shows".

Due to the pandemic, you might see the income from "Company Shows" rapidly decrease due to the lack of live events taking place. Whereas "Company Health" is still moving along nicely.

If these two companies were still joined together as one, the issues faced by "Company Shows" would have a significant impact on "Company Health" even though this arm of the business is doing well. The end result; all operations are liquidated, and you are left with no company at all.

By separating the organisation into two separate entities, the impact on "Company Shows" will have no bearing on the running of "Company Health", in turn protecting your assets in the long run.

Of course, owning two companies will mean you have two sets of accounts to manage (so two accountant fees to pay etc.). Restructuring a limited company like this isn't an option for all organisations, but it could prove a solid opportunity for many.

This is one example of minimising the impact of insolvency. How to protect your organisation isn't always glaringly apparent to the people closest to the company.

I can spot the opportunities because I have many years of experience at this sort of thing, having liquidated, restructured and mentored businesses of all shapes and sizes, from £1M plus turnover companies to the small owner-managed trader. My experience and advice works for all. Experience and hindsight is a wonderful thing. I have plenty at your disposal. I do hate to see business owners beating themselves up when they've tried their best.

In conclusion

As highlighted above, the world of insolvency can be an absolute minefield. But never give in to the inevitability of the situation without exploring all your options first. I've helped many organisations to both survive and then go on to thrive when all seemed lost. I am happy to help anyone facing similar circumstances too.
On one final note. I have spoken about the issues surrounding the "poor mental health pandemic" in the UK in this article. It's a situation I feel strongly about. If you are struggling or you know someone who is, talk to someone, seek help and don't feel like you have to go it alone. Check out https://www.nhs.uk/conditions/stress-anxiety-depression/mental-health-helplines/ for further information and support.