Finance

Understanding Your Options During Business Insolvency

No business person starts a company with the expectation of it going under, but it happens. Great business ideas become great burdens, and you have to find a way out.

Suffering from business insolvency isn’t uncommon, and there’s a way out.

Yes, insolvency is a business owner’s worse nightmare, but there’re positives to it. The liability falls on the company and not you as an owner. All outstanding debt gets written off once you sell off the business’s assets.

When a business liquidates, it staves off the legal hounds. All the threats from attorneys threatening legal action come to an immediate halt. The best part is your employees can still claim outstanding wages.

Operating through business insolvency is a difficult process, both legally and financially. Here are your options, and how can you move forward?

The First Solution to Business Insolvency? Liquidation!

A smart and immediate option to insolvency is liquidation, and this is how it works. All business stops right away.

Liquidation is a legal process that means your company is no longer an operating business entity. It is officially dissolved. By law, all business matters must submit to a licensed Insolvency Practitioner.

The IP oversees the entire liquidation process. Businesses have three liquidation options:

  • Member’s Voluntary Liquidation 

Solvent companies who can still pay their bills and have a minimum of $30,000 in assets. Business owners who wish to shut down a business legally choose this option.

  • Creditor’s Voluntary Liquidation

With agreement from the majority of the shareholders, a business owner may proceed with this option. For this option of liquidation, the business must no longer have the feasibility to operate.

  • Compulsory Liquidation 

This is involuntary liquidation forced by a company’s creditors. Compulsory liquidation usually happens when the business fails to meet payment requests.

Remember, liquidation is a legal process. Don’t choose it on a whim.

Workouts

If you don’t want to lose your business altogether, consider workout options. Turnaround experts can help companies loaded down with excessive debt.

They work with your creditors to resolve obligations without going to court.

To avoid legal battles, creditors help businesses by restructuring debt. Companies pay a little more in the long, but it’s a quick, short-term solution. This option may not work if you have too many creditors.

Bankruptcy

Business owners don’t like using the b-word, but if they’re in too much debt, they don’t have a choice.

If your organization is growing in debt, bankruptcy may be the only resolution. Chapter 11 allows you to reorganize debts and assets to turn the company around. You’ll need to hire a great legal team, as most chapter 11s aren’t successful.

If done right, both the business and the creditors benefit. The business continues to run as usual. In the background, the court restructures the business’s debts and obligations.

This way creditors get paid and owners keep their business.

Consider Your Options 

As nightmare-ish as it is, business insolvency is not the end of the world. You can restructure and survive if you want to. Consider your options and move forward.

Let us give you a little more insight into your business. Check out our business archives for the latest company hacks and ideas.