There are broadly two types of business rescue:

Type One

This is where the business goes through some formal insolvency procedure like a pre-pack administration or liquidation and what comes out the other side looks like the same business. It may even have the same trading name, same address and the same employees but will, in fact, be a new limited company without all of the old historical debt. You might not call this a rescue but it is.

In some cases, a Company Voluntary Arrangement may be used to rescue a business. This does mean the same company exists so can be very useful to preserve existing company contracts or qualifications/certificates the company needs.

Type Two

This is where formal solvency is avoided.

Often this means getting key creditors and lenders to agree to new terms of debt repayment and also  selling off assets to clear the debt. The legal definition of insolvency includes ‘being unable to pay the debts as they fall due’ so several struggling companies will fall into this definition.

The important issue for companies in this situation is to avoid receiving a winding-up petition. Once a winding-up petition is advertised in the London Gazette all dispositions are void unless ratified by the Court. This means the company bank account will be frozen.

The most common entity to file a winding-up petition is HM Revenue and Customs. They are often a key player in a business rescue and will sometimes help with a time to pay arrangement. This can mean arrears of PAYE and VAT can be paid up to over 12 months, but current payments must be paid in full as they fall due. 

Take action 

If you are worried about your business and whether it can avoid formal insolvency please get in touch with us.