The difficulties company directors face when confronted with the possibility of insolvency can be made easier with advice from the right business restructuring and insolvency firm.
Often directors feel that they have no choice other than to wind up their company when they might actually have other options.
Directors who fail to take appropriate action or simply leave it too late to deal with financial difficulties as they arise might find that their company is forced into liquidation by its creditors.
By seeking advice from an experienced and qualified insolvency professional at an early stage, directors may be able to explore options such as appointing a voluntary administrator which might enable the company to continue and the directors to eventually regain control of the business. If that isn’t possible, the right insolvency practitioner can help make it easier for directors to navigate the insolvency process.
Here are some things to consider when choosing an insolvency firm - approaches do vary and bigger certainly doesn’t necessarily mean better!
Unfortunately, directors are often concerned that approaching an insolvency firm will be too costly or will result in the liquidation of their company, and those fears can actually stop them from taking the necessary action when required.
It is important to note that these fears are largely unwarranted. A quality insolvency firm will offer directors free, no-strings attached consultations in order to discuss the company’s options and to help directors identify the best possible course of action in the circumstances.
It is critical for company directors to reach out and consult with an experienced and qualified insolvency practitioner at the earliest sign of financial difficulties in order to minimise the possibility of the liquidation of their company.
The sooner directors speak to an insolvency practitioner about the options available to them, the greater the likelihood of an outcome that will benefit all stakeholders and that will enable the company to continue trading and avoid liquidation.
Insolvency firms specialise in providing advice and services to companies in financial difficulty.
Although directors may view it as the kind of service only required when insolvency is inevitable, insolvency practitioners are actually experts who can provide directors with a greater understanding of the available options including whether their company even needs to consider a formal insolvency appointment or the services of a restructuring expert.
Many directors miss the opportunity to bring their company back to financial health due to fear of the unknown or out of concern about the potential costs.
Some directors are approached by ‘pre-insolvency’ advisors that appear to offer an easy solution to their difficulties. Unfortunately, directors who take those paths unnecessarily expose themselves to much greater risks.
By seeking advice from a registered insolvency practitioner, directors can ensure that their company’s situation is assessed by an experienced and qualified professional who will help directors properly explore all available options and choose a path forward that also ensures the directors comply with their legal obligations as company directors.
Insolvency firms offer many services however principal among them is formal insolvency appointments including voluntary liquidations, court-appointed liquidations, voluntary administrations leading to Deeds of Company Arrangements (DOCAs) and receiverships.
Quality insolvency firms are usually more than happy to provide information to company directors and their accountants about insolvency generally and are available to meet with directors to help them understand their options without cost or expectation of a formal appointment proceeding.
A quality insolvency firm will not pressure directors to liquidate their company but rather will provide the necessary information and advice to enable company directors to make properly informed decisions.
An insolvency practitioner will not recommend that directors wind up their company when other courses of action such as negotiating directly with creditors or appointing a voluntary administrator may produce a better outcome and will only propose a formal insolvency appointment if satisfied the company is actually insolvent.
If the directors decide to proceed with an insolvency appointment, the appointed insolvency practitioner takes over the company and its assets and the directors lose control of the company. At that stage, it becomes more difficult and costly to change the insolvency practitioner if for some reason, the directors decide that they are not happy with their choice.
This is why it is very important that directors carefully select any insolvency firm they approach.
When company directors decide that it is an appropriate time to speak to an insolvency practitioner, there are a number of factors they should consider when selecting an insolvency firm to approach.
Firstly, size matters!
Size does impact the service provided by any particular firm and will likely determine the type of appointments each firm will accept. For example, for a company operating on a national level, an insolvency firm with offices in each state would be more appropriate than a small firm with a single partner. A small insolvency firm may not even accept the appointment as it is unlikely to have the resources to successfully manage an appointment of that scale.
On the other hand, for smaller and medium sized companies who may operate in only one or two states, they may be much better served by a small, boutique insolvency firm that specialises in working with businesses of that size.
A smaller insolvency firm is able to provide a more personalized approach, with the appointed insolvency practitioner more likely to be closely involved and working directly on the matter instead of the work being spread across a larger team. As a result, it is much easier for directors to stay informed and have direct communication with the appointed insolvency practitioner.
While some firms will have more experience than others in particular industries, insolvency firms will generally accept appointments from any industry, subject to their firm’s resources and capacity to manage the appointment. However, experienced insolvency practitioners will have been involved with different types of appointments across a wide range of industries and are able to identify viable solutions based on the particular needs of each company, regardless of their prior experience with any specific industry.
A very important consideration for directors is the potential cost of engaging an insolvency firm, whether solely for insolvency advice or in the event of a formal insolvency appointment.
If a formal insolvency appointment such as a voluntary liquidation or administration proceeds, the appointed liquidator or administrator is entitled to be paid for their professional time and other costs out of the assets of the company. This is subject to the availability of sufficient assets in the company and the insolvency practitioner obtaining approval from the company’s creditors to pay his fees out of those assets. In this situation, directors are not charged any upfront costs for the insolvency practitioner’s services, whether for any pre-appointment advice or for the formal insolvency appointment.
In circumstances where a company does not have sufficient assets to cover the costs and expenses of a liquidator or administrator, the insolvency practitioner and the company’s directors will usually agree to an upfront payment to cover the appointee’s initial fees and costs. In that case, the agreed amount must be made before any appointment can commence. Once appointed, those funds can be used by the insolvency practitioner to pay his fees and costs, again subject to obtaining approval of the company’s creditors.
If the insolvency practitioner’s fees and costs end up being higher than the agreed amount paid by the directors, those fees will only be paid in the event that sufficient funds are available in the liquidation or administration. If funds are not available, the insolvency practitioner will write off those fees.
That is, the directors will only be required to pay the agreed, upfront amount and will not be asked to pay any fees of the appointee that may exceed that amount.
Directors should remember that larger firms with multiple levels of staff tend to have higher overheads and cost structures. On the other hand, smaller firms often have lower cost structures as they operate with lower fixed costs and without layers of staff or management or the need for multiple people to review and authorize every document or action.
Considering the above factors can help directors identify insolvency firms to meet with before they even decide to proceed with a formal insolvency appointment.
Once the directors have decided to approach an insolvency practitioner and have selected an insolvency firm to meet with to discuss their particular circumstances, the first step is to set up an initial meeting to discuss the company’s affairs and explore available options.
Meeting with the insolvency practitioner is an essential step before any formal appointment can proceed. It provides an opportunity for the directors and the insolvency practitioner to explore all options that may be available to the company given its circumstances. Directors can ask questions and can take the time to fully understand their options.
The discussion provides an opportunity for the insolvency practitioner to get a better understanding of the company’s situation and factors such as the directors’ ability to access external funding, and to provide his opinion regarding any approaches that may be viable for the company. Depending on the circumstances, he may simply advise that liquidation is the only viable alternative.
The initial discussion is also critical for an insolvency practitioner to obtain sufficient information about the company to consider whether to accept the appointment if asked to act as liquidator or administrator. It will also give them a better idea of the resources that may be needed to conduct the appointment. An insolvency practitioner will not consent to act in an insolvency appointment in circumstances where they do not have the resources or capacity available to conduct the appointment efficiently and effectively.
The meeting also provides an opportunity for directors to make their own assessment about the insolvency firm before deciding to proceed with an appointment. As the insolvency process can be quite complex, directors are likely to be much more confident if they know they are appointing an experienced and qualified insolvency practitioner.
With a better understanding of the insolvency firm and its processes, company directors are in a better position to decide whether to proceed with a formal insolvency appointment with that particular insolvency firm.
Although facing and overcoming financial difficulties can be extremely challenging for directors and their company, taking the first step by seeking expert insolvency advice gives company directors the best possible chance of successfully dealing with the situation.
The above tips will hopefully assist directors find the best insolvency firm to meet their needs.