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What is Voluntary Insolvency?

Published on 17th October 2018

By being your own boss, you’re responsible for your own success. But for your vision to succeed, you need passion, dedication and (of course) access to a sufficient amount of capital. Capital is an essential resource. Without it, keeping up with your financial obligations and running day-to-day operations will be a struggle. Yet, unfortunately, this is a situation that many business owners find themselves in, especially during a sustained period of uneven cashflow. But should the situation remain unchallenged, leading to rising debt levels, you could find yourself filing for Voluntary Insolvency. However, before making this decision, it’s crucial that you fully understand what Voluntary Insolvency is and what it means for your business.

What is Voluntary Insolvency?

Simply put, Voluntary Insolvency describes the act of filing for Insolvency on your own accord, freely admitting that your business can no longer keep up with its financial obligations and needs help. As such, the situation will involve having an insolvency practitioner review your financial situation and internal processes, allowing them to assess whether or not your business is still viable. So although an insolvency practitioner will try to develop a plan that supports both your business and the outstanding debt, their priority is ensuring that any money owed to creditors is resolved - even if it means putting your business into liquidation.  

As such, if your business is deemed viable (with a possibility of recovering), the insolvency practitioner will attempt to establish a Company Voluntary Agreement (CVA) with your creditors. However, if they don’t, they’ll instead arrange a meeting between you and your creditors, which may involve discussing the sale of your business’ assets through a liquidator. Nevertheless, you still run the risk of having your business closed down.

Having trouble keeping up with your financial obligations? Need access to additional funds, and fast? Apply for Working Capital Finance or learn more about how your business could benefit.

Are there advantages of Voluntary Insolvency?

Although insolvency is something that every business owner aims to avoid, filing for Voluntary Insolvency does present some advantages (as opposed to Compulsory Insolvency). Yet nevertheless, it’s a decision that needs to be taken carefully. If you do decide to take this path, some benefits include:

  • Less risk of being subject to charges that may not be applicable in your case, especially in regards to a Creditors Voluntary Liquidation (CVL).
  • Unsecured Creditors receiving some form of repayment on the back of the sale of your business’ assets, resolving your debts (depending on how much money is raised).
  • The possibility of retaining an amicable relationship with your creditors, in spite of the situation (as opposed to a Compulsory Liquidation).

What are the disadvantages of Voluntary Insolvency?

However, Voluntary Insolvency still exposes you to a number of disadvantages as well. As such, in order to help you make an informed decision, you need to be aware that this involves:

  • Ceasing your business’ trading, as well as the use of your business’ brand.
  • Making it public that your business has become insolvent, which could lead to trading charges if any associated directors fail to respond and take appropriate action in time.
  • The possibility of going through the courts, incurring further legal expenses (which is why some business owners prefer using Creditor Voluntary Liquidation (CVL) instead).

What alternatives are there to Voluntary Insolvency?

Insolvency is never a situation that any business owner wishes to be in. Yet, if your business is unable to generate enough revenue to support your financial obligations, it’s a situation you could find yourself in all the same. But rather than sit idly by, there are a variety of ways in which you can support your business’ finances and avoid the risk of becoming insolvent. One such way is by applying for Working Capital Finance. Working Capital Finance is a specialised package that could help you manage your business’ finances by offering you access to a variety of business finance solutions, including Invoice Finance, Merchant Cash Advance (MCA), Asset Refinance and Overdraft Replacement. However, in order to make an informed decision that safeguards your business’ success, understanding how each of these products work is crucial - which is where we can help.

Need help supporting your business?

Maintaining your business’ bottom line is a vital responsibility. However, that’s sometimes easier said than done, especially if cash flow is uneven and you are incurring a rising amount of debt as a result. But rather than let the situation get out of hand and escalate into insolvency, identifying the root cause of the issue and taking action early on could safeguard your business - which is where Working Capital Finance could help. All you need to do source a suitable finance agreement for your business, from a lender you can trust.

Rangewell is an Access to Finance specialist and has mapped over 400 lenders to offer you an overview of more than 23,000 business finance products for your SME. Our services are free to use and we’ll also offer guidance and support through the application process. So if you're looking to gain access to additional funds and avoid the risk of insolvency, apply for Working Capital Finance today or find out more with Rangewell. And if you want to see insolvency data by local authority click here.

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