What to do if your business owes money: debt support & legal options?

Many businesses in the UK are currently facing periods of financial strain. Late payments, tax liabilities, or bank loans can quickly build up and place heavy pressure on cash flow. However, being in debt does not necessarily mean facing bankruptcy; there are solutions available to regain control. Consulting a solicitor specialising in business law can make it easier to negotiate with creditors and implement a suitable restructuring plan.

This article outlines the main forms of business debt help, ranging from consolidation to recovery, as well as the legal options available.

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What is business debt and why can it become a risk?

When debt accumulates, recognising the red flags early gives a business a chance to act before it’s too late.

Types of business debt

Business debt includes all the amounts a company owes to its financial partners, suppliers, or government bodies. It can take different forms, such as:

• Unpaid invoices to suppliers
• Bank loans or overdrafts
• Tax and social security liabilities owed to HMRC

Warning signs to watch for

Excessive debt can directly affect cash flow and limit a company’s ability to meet day-to-day obligations. Beyond the financial impact, it can damage the business’s reputation and threaten its continuity.

Key warning signs include:

• Repeated late payments
• Increasing pressure from creditors
• Legal threats or demands

What financial support and consolidation solutions are available for a business in debt?

When debts start to pile up, it is essential to act quickly to protect cash flow and plan a realistic repayment strategy. Two main approaches are often used: business debt consolidation and direct negotiation with creditors.

Business debt consolidation

Business debt consolidation involves combining multiple debts into a single loan, usually with one monthly payment that is often reduced. The typical procedure includes:

• Listing all debts: suppliers, banks, HMRC, and other creditors
• Contacting a financial institution or specialist intermediary to arrange the consolidation loan
• Reviewing the loan terms: total amount, interest rate, repayment period, and any associated fees

Consolidation offers several benefits. It simplifies debt management by reducing the number of creditors to deal with, often provides a lower interest rate than existing debts, and gives better financial visibility, making cash flow planning easier.

However, there are also risks. The repayment period may be longer, increasing the total cost of the loan. Additional fees may apply, and if the loan is not properly structured, financial pressure may simply be shifted rather than genuinely reduced.

Negotiating with creditors

Another approach is to commence direct negotiations with creditors to relieve financial pressure. This involves contacting each creditor, explaining the situation transparently, and proposing a realistic repayment plan based on current financial capacity.

It is possible to request adjustments such as extended payment deadlines, a temporary freeze on interest, or even a partial debt reduction. Taking a proactive and transparent approach helps maintain good business relationships, avoid legal action, and safeguard the continuity of operations.

What legal and restructuring options are available for a business in debt?

When debt becomes too significant to manage through standard solutions, several legal options exist to protect the business whilst respecting its creditors.

Debt restructuring supervised by an Insolvency Practitioner (IP)

Debt restructuring supervised by an IP involves reorganising all debts through a formal, legally regulated plan. The objective is to preserve the business’s viability while ensuring fair repayment to creditors.

The process includes:

• A full analysis of the company’s financial situation by the IP
• Negotiation with creditors to adjust repayment terms
• Implementation of a structured and legal plan, often spanning several years
• Approval of the plan by the creditors, making it legally binding

Unlike a standard negotiation with creditors, which may be limited to requesting temporary extensions or partial reductions, supervised debt restructuring is formal and secure, protecting the business from immediate legal actions and ensuring all creditors are treated fairly.

While-insolvent options

When a business is technically insolvent, meaning it cannot meet its debts as they fall due, several while-insolvent options can be pursued to manage the situation in a structured way:

• Company Voluntary Arrangement (CVA) allows a business to repay part of its debt over several years under a structured plan. This avoids immediate liquidation and enables the company to continue trading. The arrangement must be approved by at least 75% of creditors by value and becomes legally binding once approved.
• Administration provides legal protection against creditors whilst an independent administrator works to rescue the business. The administrator can reorganise the company, negotiate with creditors, and sell certain assets to generate cash. The main goal is to preserve business continuity and maximise creditor repayment.
• Creditors’ voluntary liquidation (CVL) involves closing the business in an orderly manner, selling its assets to repay creditors as far as possible, and legally dissolving the company once all obligations are settled. This option is generally considered when other measures cannot save the business.

What business rescue paths can help a company recover?

When a business faces financial difficulties, several business rescue paths can be considered beyond legal restructuring solutions:

• Refinancing involves obtaining new lines of credit or renegotiating existing loans to improve cash flow and stabilise payments. This approach provides time to continue operations while gradually managing debt.
• Mergers or strategic partnerships allow businesses to combine resources, expand their customer base, and reduce operational costs. These steps can strengthen competitive positioning and create new growth opportunities.
• A strategic pivot means adapting the business model, for example by diversifying products or services, targeting new market segments, or adopting new technologies. This approach helps the company remain relevant amid changing market conditions.

In all cases, professional guidance from a solicitor is essential to identify the most suitable path, anticipate risks, and implement changes effectively, thereby increasing the chances of long-term recovery.

FAQs

Can I protect my personal assets if my business is in debt? If your business is a Limited Company (Ltd), your personal assets are generally protected. However, if you have given personal guarantees for business debts, or in cases of wrongful trading or fraudulent activity, creditors may pursue your personal assets. It is essential to consult a solicitor to understand your responsibilities and safeguard your personal property.

How long does debt restructuring supervised by an IP usually take? The duration varies depending on the complexity of the debts and the number of creditors, but a formal debt restructuring plan can last from several months to a few years. It is important to follow the legal steps and obtain creditor approval for the plan to be legally binding.

Is it possible to secure additional funding during a CVA or administration? Yes, it may be possible to negotiate additional funding to support cash flow, but this will depend on lender confidence and the approval of the IP or administrator. A solid business plan and full transparency about the company’s financial situation are essential.

Managing a company’s debts may seem complex, but legal and financial solutions exist to secure cash flow and preserve business activity. Acting early and seeking professional advice significantly increases the chances of a sustainable recovery.

Secure your business and explore solutions for your debt!

Contact a business law solicitor listed on Qredible’s network to discuss the best approach for your company and plan your next steps.

KEY TAKEAWAYS

• Act early; identify debt issues before they escalate.
• Seek professional guidance; solicitors and Insolvency Practitioners provide legal and financial support.
• Consider all options; debt consolidation, negotiation, restructuring, or strategic pivots can help.
• Use structured plans; formal agreements and legal procedures protect the company and its directors.