If your company is struggling to repay unaffordable debts, then being able to write them off can sound appealing. Depending on your company’s situation, including the volume of its debt and the number of creditors, writing off those debts may be possible.
What Happens If Your Business Becomes Insolvent?
Your company is insolvent if it can’t pay its liabilities as and when they fall due. You should act as soon as you’re aware that your company is insolvent. Dodging and ignoring the problem will only worsen things. Creditors are likely to pursue your company for what they’re owed in the form of County Court Judgments (CCJs) and Statutory Demands. This could even lead to visits from debt collectors and bailiffs, and your creditors could even attempt to force the company into liquidation.
How You Can Write off Your Company’s Debts
Fortunately, help is available if your company is insolvent. Your first step should be to contact a licensed and regulated insolvency practitioner. They can offer you advice and guidance based on your circumstances.
If your company is struggling to repay its debts but otherwise has a viable business model, then debt consolidation may be a viable option to help it recover. The insolvency practitioner may suggest the company enter a Company Voluntary Arrangement (CVA) if this would be the best option. The insolvency practitioner acts as a mediator between the company and its creditors while the company repays a portion of its debts at an affordable monthly rate. The arrangement usually lasts around five years, with the company continuing to trade for the duration. Once completed, any remaining unsecured debt is written off.
If the company’s debts are more severe, it could indicate deeper-rooted problems and benefit more from restructuring than repayment. Administration may be a more viable solution in that case. This process involves an insolvency practitioner looking into the company’s affairs and making the necessary changes to return it to a profitable state and appealing to potential buyers.
If the company’s debts are of such a level that recovery isn’t feasible, the insolvency practitioner will likely suggest that the company close through a voluntary liquidation. A Creditors Voluntary Liquidation (CVL) will see the company close in an orderly manner, writing off its unaffordable debts and drawing a line under the company’s insolvency. A CVL is generally preferable to the company being forced into compulsory liquidation by its creditors.
Will I Be Personally Liable for My Company’s Debts?
Acting as the director of a limited company gives you limited liability protection. This means that if the company becomes insolvent, its finances are separate from your personal funds, and the company’s debts won’t affect you personally.
If, while acting as the company’s director, you acted in the best interests of that company and its creditors, this protection remains.
