Tips to Battle Out Liquidity Issues

Liquidity pertains to the extent by which an individual or a business is able to meet immediate and short term obligations by virtue of adequate levels of cash, or assets that can be quickly convertible to it. Failure or the inability to do so can pose financial threats and can even lead to a dreaded insolvency. How does one fix such issues then? We asked the experts from AABRS to help us and below are the advice they generously gave.

The Dilemma: Cash is trapped within sales invoices

Fix It: Just because sales are high doesn’t necessarily mean that cash is too. Remember that a good percentage of sales are made on credit, otherwise known as accounts receivables. In other words, the currency is not received not until the invoice matures and the customer pays up. Sometimes, customers are delayed or worse they completely default. Moreover, long outstanding receivables will trap a huge chunk of the resources which can certainly create a liquidity issue.

There are many ways to fix this. Some entities may have to revise their credit terms but if that won’t prove to be feasible, invoice financing, factoring and discounting in particular, shall allow the locked up cash to be freed making them immediately available for use.

The Dilemma: Inventory that has been sitting idle for too long

Fix It: Stocking up on one’s inventory is a practice done to avoid any shortages but the thing is they have to move. When they stay idle for long, they eventually lose value. They pertain to a significant chunk in one’s assets too making things even more troublesome.

To fix this, selling off idle, redundant and useless inventory will bring in more resources and avoid the assets from losing any more value. Another option is to settle an agreement with suppliers so that stocking wouldn’t have to be overdone.

The Dilemma: Redundant and inoperative assets

Fix It: A company may own properties, equipment and other assets that despite their functionality, no longer serve a purpose to the organization. These assets are often stored in a warehouse or similar space. An example would be old office tables that have been replaced with new and more ergonomic ones. They are still in good condition but they no longer serve a purpose. To better liquidity, AABRS suggests that companies move these assets. Selling them will not only bring in cash but will also save storage space, eventually diminishing costs.

Is Your Employer About to Go Broke

brokeAs an employee, one has to be very observant not only in matters of work but also in matters concerning your employer’s stability. We all need a job to sustain a living and it would be one hell of a nightmare to go to work one day and find out that the company is folding, closing down, going bankrupt or liquidating; in other words, ‘the end’. But even if it is the case, the same shouldn’t hold true to employees. This makes it important that one keeps their guard up and stays aware of the warning signs of an employer going broke. Today, we give you the said telltale signs with the help of insolvency experts from Edinburgh.

Sales and Orders Slowing Down – It’s natural for slow and plateau levels to occur given the presence of certain factors like poor economy or seasonal purchasing cycles but when they happen drastically that they slow down and drop at such a high rate, it could denote a possible financial crisis.

Consumer Crashes – When a particular client, especially one that consist the bulk or a significant share of total orders, goes under and liquidates, it could bring the company with it.

Work Stagnancy – When work seems to be slow and stagnant then it could mean a lack in client and sales volume. Less work means less is happening and when such a thing occurs insolvency will rear its ugly head.

Abrupt Cost Cuts – It is normal for businesses to minimize expenses but abrupt cost cutting with less to no explanation are a desperate means to minimize losses and pool remaining resources. This is the first line of action taken by employers who are having some sort of crisis.

Lesser Benefits – One of the first casualties of the cost cuts would have to be the employee benefits. This could be different things for different companies. There can be no bonuses or salary increases, absence of the usual corporate outings and trainings or things as simple as free coffee at the office and gym memberships.

Less to Zero Upgrades – Companies will always seek for improvement and this can be seen in equipment and machineries. When the company avoids or decreases such upgrades, it is most definitely reducing its current costs which should in itself raise red flags.

High Turnover/Resignations – Lastly, Edinburgh warns employees of the high turnover and resignations. This begins with the higher ranking officials as they are first to detect the problem. Everyone wants to save themselves so if a lot have been jumping off the ship and into safety boats then you have to be alarmed.

Getting to Know the Creditors Voluntary Liquidation

LiquidationThe Creditors Voluntary Liquidation or CVL is one of three main types of liquidation procedures available and one of the two voluntary procedures taken by directors and owners on their own accord. Let’s get to know more about it today.

Defined, a CVL is a procedure in which the corporate directors choose to voluntarily bring the business to an end by appointing a licensed insolvency practitioner as a liquidator to liquidate or sell off all of its assets, distribute proceeds to rightful parties and all other related task necessary to the procedure.

Do understand and remember that the procedure can only be taken by an insolvent company or on whose assets and cash inflows can no longer suffice for its bigger ratio liabilities and outflow counterparts. This makes it important for businesses to carefully examine their finances and their state of affairs first before concluding to take on a CVL.

It takes a whole lot of examination and assessment to do that but there are two ways to help you detect where one stands early on. They are as follows.

The first is referred to as the “balance sheet test” and looks at two integral parts of your statement of financial position, the assets and liabilities. A ratio that equates to a heavier liability than assets is considered to be dangerous as it can lead one to insolvency.

The second is called the “cash flow test” and looks at one’s statement of cash flows, comparing the inflows to the outflows where should the latter outweigh the former will reveal an insolvency case.

Because a CVL is voluntary in nature, the business and its board of directors must come to a major vote regarding it. Plus, they have to release a statutory declaration along with proofs to their claims. If proven that the business is indeed insolvent, a Creditors Voluntary Liquidation will roll on.

One of the important parts of the procedure includes having to meet with one’s creditors to discuss the plans and steps to be taken. One should never keep such matters a secret to them. They are after all, majorly affected by this action. Because a Creditors Voluntary Liquidation is intentionally taken by the entity, it has the power to appoint a liquidator to oversee all of the procedures taken. The said liquidator shall take care of valuating assets, selling them off an distributing proceeds with the first level of priority given to creditors.

Why Consider a Pre-pack Administration

administration insolvencyA Pre-pack Administration is a relatively new but widely popular insolvency procedure that is taking the business world by storm. It legally permits a viable but insolvent entity to be sold to in order for it to continue operations and trade under a new name and management without the burden of its debts. The reason why many entities opt for it over liquidation and any other business recovery options is due to the following set of benefits.

• It strengthens business continuity. Having the company sold to existing directors, a trade buyer or third party who are all individuals familiar of the business and how it runs allows “going concern” to be fortified. In the first place, the entity is sold and continues to operate instead of closed down and liquidated. Furthermore, the company gets to reestablish itself and hopefully carry on and recover from its slip.
• It preserves jobs and the economy. Since business continuity is fortified, people get to hold onto their jobs instead of losing them. Even if a restructuring happens and layoff of redundant positions may be necessary, employment is still preserved by a large degree instead of let go all at once. Moreover, a bankrupt and defunct business hits the economy hard.
• Suppliers and creditors favor it. With a better cash flow from the new company, suppliers can retain their ties with the entity and continue doing business with it. Furthermore, creditors are likely to get a better return of their investments with a pre-pack administration in contrast to a winding up petition at court. If the new company does great, both suppliers and creditors will get their shares in full instead of in partiality or none at all.
• Branding and image is preserved. A company that closes down due to financial distress looks bad in the eyes of investors, creditors and even the general public. Having a pre-pack administration is not all polished in itself but is more favorable to the majority as it appears more like restructuring and improving the business.
• Voluntary and forced liquidations are avoided. As mentioned earlier, a pre-pack administration legally permits a viable but insolvent entity to be sold to in order for it to continue operations and trade under a new name and management without the burden of its debts. That being said, both a Creditors Voluntary Liquidation and a Winding Up Petition are avoided by the entity.

Learn more about pre pack administration here at AABRS.

A Checklist of Tasks When Faced with Winding Up Petitions

winding-up-businessWhen a winding up petition comes sliding into your doorstep then you have to act fast and smart about it. This situation is no child’s play and it puts a lot of threat and risk to the company you have put your sweat and blood on, figuratively that is. To help you with that, AABRS came up with a checklist on the tasks for you to do when faced with winding up petitions.

  1. Know what you are up against.

First things first, do you even know what a winding up petition is? You don’t? You do but just a smidge? Defined, it pertains to a court order that forces an insolvent company into compulsory liquidation. The order is released as an answer to a petition brought up by corporate creditors who want to collect the amounts due them by the entity in question. There is much more to this and it is your job to know. You cannot face an enemy that you are clueless about.

  1. Hire a qualified and trusted liquidation and insolvency practitioner.

You need an expert to handle the situation. After all, no entrepreneur is fully adequate when it comes to handling things like this. You will be provided with options and made to understand the situation best. At the same time, you will have professionals to see things through and help you make the most out of a bad situation.

  1. Look into your operations and financial situation.

Take out your reports and financial statements and see what went wrong. Insolvency is quite an obvious case. By simply looking into the reports, an entity may already have inkling as to whether or not it is in financial distress. If you are solvent then you have to prove it to overturn the creditors’ claims. If you are otherwise then you may need to rethink your options to minimize losses as much as possible.

  1. Cease trading and operations.

When winding up petitions have indeed risen to the surface due to insolvency, the entity must cease trading. It is a must that the court order is upheld. At the same time continuing operations would be deemed illegal and unfair to creditors and clients. It’s a sad thing to do but one that must be done. Moreover, directors may be held personally liable for doing so. It must be remembered that it is illegal to continue operations under full knowledge of insolvency.

Reinvesting with the Help of a Members Voluntary Liquidation

business-liquidationA Members Voluntary Liquidation can be used in many ways and for various reasons, a popular one being that for purposes of retirement. Another one includes that of reinvesting your money. Entrepreneurs and owners may want to liquidate the company in order to withdraw their share in it and open up a new shop, invest in stocks and real estate or put them somewhere else where they are bound to grow and make even more profit.

Sometimes, opportunities knock on your door and they are not only feasible and promising but also something that stirs your interest. Entrepreneurs are known to be risk takers and at the same time they do not settle for less. There’s always the pursuit for growth, expansion, success and achievement. At the same time, one cannot simply withdraw all your capital in your business in just one snap. You need formalities and a legal process to do it. This is what an MVL is called for. It seeks to formally close down the solvent entity, liquidate its assets, pay creditors and distribute to owners and/or shareholders.

During the course of the process, the company must first come up convene with the shareholders and majority of the board must agree to the MVL. Thorough examination shall also be done in order to prove the actual state of the company’s financial affairs. An evidence to prove its solvency should be present. A liquidation professional and practitioner will also be called for. Meetings with the shareholders and creditors will arise too and a liquidator shall be assigned. The process continues and assets are liquidated with proceeds distributed accordingly with priority given to creditors first. Paper work and taxes shall also be filed. After the shareholders and owners receive their share, they can then use it in any way they want such a put it up for investment somewhere else.

The Members Voluntary Liquidation or MVL is a process that is only available for solvent entities. This means that only those that can fulfill their obligations as they become due for at least a twelve month period are allowed to take it. If this is not the case and the entity is instead an insolvent one, a Creditors Voluntary Liquidation or CVL will run its course instead. Remember that you cannot use the MVL to write off and run from your unpaid obligations.

How a Pre Pack Administration Can Help a Troubled Company

business recoveryA pre pack administration is rising in popularity as one of the most effective business recovery options there are. It is considered as a huge savior by many troubled companies and to find out the reason behind that, you better read on.

The Business Recovery Professionals in the UK defines pre packs as arrangements under which the trade of the entire or a fraction of a business or its assets is negotiated with a purchase preceding the appointment of an administrator who in turn will effect the sale straight away or shortly after his or her appointment.

A pre packed administration is a restructuring method that allows troubled businesses, entities that are likely to be under insolvency and those at a high risk of dissolution and/or bankruptcy to sell part of or the entire company to a buyer, oftentimes to one of its directors, to a trade buyer or to a third party, where it will then operate under new management and under a new name. In some arrangements, a buy back will be included in the contract.

Its use has been popular for troubled companies due to a number of factors. Listed below are a few of the many.

  • It promotes business continuity as it strengthens the entity’s going concern. Entities at high risk of insolvency and bankruptcy often turn to immediate liquidations. There’s nothing wrong with that except if you don’t want to give up your hard work just yet. A pre pack allows operations to continue and the company to recover.
  • It helps save employment. The restructuring may call for a few layoffs particularly that of redundant positions. This is still good considering that in liquidations, everyone loses their income sources.
  • It retains brand image. Continuation of business says a lot for a troubled company. It means that you are still fighting through, finding means to recover and doing your best to make ends meet. Once your company has been dubbed as bankrupt, there is no more going back.
  • It invigorates trust and confidence among each member of the organization. Employers saving jobs, directors finding solutions to problems and employees participating in every way they could boosts morale within the organization. Manpower has a lot to do with the success of every company.
  • It also helps preserve creditor relationship and standing. A pre packed administration provides a bigger return to creditors than that achieved by liquidations. Truth be told, creditors will prefer the company to continue and pick up so that it can pay them in full than close down and pay them partially with the balance written off.

AABRS on the Benefits of an MVL

mvl meetingAn MVL which stands for a Members Voluntary Liquidation is a formal process used to close a solvent company. Owners and shareholders may want to wind up affairs for purposes of redistribution, retirement and other business endeavors among others. There are benefits to choosing this method over the others and AABRS is here to help us determine what those are.

First of all, it should be taken into memory that the directors of the company must file a declaration of solvency. It must state that the entity has performed a full examination of the company’s affairs and that it will be able to fulfill all of its obligations within a period not exceeding 12 months. By way of a Special Resolution, the directors place the company into liquidation and will appoint a liquidator to manage the process. Assets will then be sold and the proceeds distributed to all shareholders with initial priority given to company creditors.

  1. The MVL in itself provides a means for the owners and shareholders to formally and properly close the company in good terms. This means that no unfinished business has been left and all issues have been settled accordingly. In a way, this upholds the image and perception that the brand has.
  2. Tax wise a Members Voluntary Liquidation is also truly beneficial. This is due to the fact that the distribution will be considered as a capital receipt and not as income. This makes it subjected to capital gains tax rather than income tax. This is a good thing considering that the latter has a way higher percentage than the former. Furthermore, if the entity applies for and is granted with what we call the Entrepreneurs’ Relief, the applied tax rate could even be lowered by 10%. This will not be applicable to all but if you qualify for it then all the better.
  3. The MVL procedure allows for a fast and timely distribution to shareholders. No one wants a bump and a long delay in getting their checks. After all, if your purpose to winding up has something to do with retirement and reinvestments for example, you will really need all the punctuality you can get.
  4. Lastly, AABRS stresses on the Members Voluntary Liquidation’s ability to handle corporate exits. Sometimes, although business may be considered solvent, it can be performing way beyond necessary and below standards that liquidating it while solvent becomes the best choice. Of course there are other options available and winding up may not be the choice for all thus careful analysis and planning must be done regarding this.