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On the Road to recovery but running out of Gas?
What are the options when you have got business back on track but have too much of a hole in your finances ?
This edition is aimed at practical steps that may help a person who has too many creditors who cannot be satisfied even from a recovering or successful business.
The approach draws on the legal but is more concerned with the practical. By this we mean how do you bring your creditors to the table with meaningful engagement and a workable solution. Everyone's situation is different. As such it is vital that you seek professional legal and financial advice and no action should be taken based on the information here alone.
Time and again the purely legal approach usually ends up as the worst outcome for both sides. Borrowers who don’t address the issue in a meaningful way end up getting a poorer outcome from the courts. Banks and other creditors who pursue a solely legal route may have got a legal result but can finds its a hollow victory- loose/loose for the individual and the creditor. Liquidation and Receiverships are processes that spell more than likely the end of the road so are not discussed here. So what are the options? Each one is dealt with in detail below. We at Newmarket aim to work with people and businesses that are looking to rebuild their business and personal finances. We act as honest brokers and negotiators.
We work closely with other professionals to bring straight forward, objective advice and support with the aim of bringing proactive and workable solutions to the benefit of all parties.
If you would like to discuss in confidence please call Gerry at 4293600 or email him at gerry@newmarket.ie
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Examinerships Examinerships are a great idea but not for everyone. The essential purpose is to secure a write down of the company's overall debts and allow a viable business to resume normal trading. However the company must be able to demonstrate that it has a strong chance of survival and that the creditors would achieve a better outcome than in a straight liquidation.
Essentially a company is looking for the protection of the courts in order to demonstrate this survival. Early in the process it will need an Independent Accountants Report which should demonstrate this underlying viability of the business. Protection is provided for 70-100 days. At the end of this time the company must have reached an arrangement with its creditors and demonstrate that it is viable.
Recently there have been new legal rulings in regard to property leases and it is likely that the Examinership process will facilitate restructuring a company particularly if it operates from multiple locations.
Read On....
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Creditors Voluntary Arrangements A company may consider it feasible to negotiate with its main suppliers and bankers directly. The main benefit of this process is that it is a non legal route and as such can be far cheaper. However, compared to an examinership the creditors would need to feel a higher level of comfort with the solution because - unlike an examinership- a solution cannot be imposed on any creditor. In essence it is a fully voluntary arrangement. Each and every creditor is free to reject the proposal. This compares to an Examinership where the courts can determine if the solution is equitable and impose on all parties when agreement has not been reached voluntarily. That said, where there is belief and trust between the creditors and the management there is a potential win- win for both sides. To work, requires a lot of trust and goodwill. Confidentiality is vital as business goodwill needs to be protected. To this end bringing the core stakeholders on board quickly is vital. With this endorsement momentum can be built. The key ingredients for success are....
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What to do when Personal Guarantees are called in? These arise where directors or other parties personally guarantee the debts of a company. Typically this has been required for privately owned companies where the banks are uncertain of the track record of the business or that the asset base is insufficient. With the NAMA process well underway the general view is that the banks would be seen to taking a relatively aggressive stance in recovering monies due under personal guarantees. Notwithstanding this negotiated settlements are the best option. Like all other arrangements the banks need to know that the guarantor is making a full and open disclosure.
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What about personal bankruptcy? This essentially should be the last resort. Your ability to borrow or restart a business is all but eliminated for a considerable period of time. If creditors are unwilling to work with the person it may be the only solution particularly where there are many competing interests. In the case of preferential e.g. taxes, there maybe no relief available and these may end up having to be fully discharged. Notwithstanding this, it is not necessarily a satisfactory outcome for the lender and creditors either. For this reason a negotiated settlement will normally bring better results for all parties and the means to achieve this are similar to the Creditors Voluntary arrangement mentioned above. Unlike the UK personal bankruptcy protection has not kept up with developments in the corporate sphere. As such it can take 12 years to be discharged from bankruptcy compared to 3years in the UK. (Some recent talk of new legislation) There are three potential scenarios:
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