How the process looks and feels like for business clients.
Dealing financial distress can be an incredibly challenging and stressful experience for individuals and businesses alike. When a company or individual finds themselves in this situation, seeking professional help is often the first step towards a path to recovery.
At Worrells, we are insolvency and turnaround teams who help people and business to recover from difficult financial situations, but we know many of our readers are not familiar/exposed to what an initial meeting process looks like between our team and the directors. So, here’s a comprehensive explanation of how Worrells conducts these crucial meetings.
First and foremost, we listen. We understand every situation is unique, and the best way to fully understand our client's circumstances is to let them talk about their experiences and the challenges they’ve faced. Through active listening, we can gain an understanding of their financial position and the factors that have contributed to it.
Once we have a clear picture of their situation, we then move on to reviewing the company’s financial accounts. This includes identifying assets and ascertaining their potential value, and identifying the level of creditors. This helps us to gain a deeper understanding of the business’s financial position and find any potential issues to be addressed.
After reviewing the financial accounts, we then move on to outlining the available options. It is essential to understand that these options will vary depending on the company's circumstances. However, there are typically four main options available:
Do nothing. This option is the least desirable. The business will normally decline, any goodwill will diminish, and ultimately any chance of saving the business will disappear.
Sell the business. This may be an option if the business has some saleable assets to generate funds to repay creditors. If the sale price is not enough to satisfy all creditors in full, then after the sale has settled the company may need to be placed into liquidation, but it could give a higher return than simply closing the doors.
Cease trading and appoint a liquidator. This option involves closing the business and appointing a liquidator to sell the assets and distribute the proceeds to creditors.
Appoint a small business practitioner or voluntary administrator to put a proposal to creditors. This option involves appointing an insolvency practitioner to prepare a proposal to creditors that may allow the business to continue trading and avoid liquidation.
As we go through each of these options, we explain the potential ramifications and outcomes that each of them may have on the client. We aim to help the company directors fully understand the implications of each option, allowing them to make an informed decision about which option is right for them.
If our client decides to consider option four, we ask two critical questions to determine whether this is a viable option:
The first question is whether the business is profitable going forward. This is important because a small business restructuring (SBR) or Deed of Company Arrangement (DOCA) will not work without a solid financial foundation. We help our clients prepare a cash-flow projection that is objective and realistic, helping them to understand whether the business is likely to be profitable in the future.
The second critical question is whether the directors have the energy and vision to continue a challenging road ahead. An SBR or DOCA involves a lot of work from the directors, and without their active involvement, the process is unlikely to succeed.
In summary, when meeting with clients in financial distress, Worrells first listens to the challenges they’ve faced. We then review the business’s financial position and outline the available options. We explain the ramifications of each option and help our clients to make an informed decision. If they decide to consider an SBR or DOCA, we help them to prepare a realistic cash-flow projection and assess whether they have the energy and vision to continue a challenging road ahead. By taking a proactive and supportive approach, we aim to help our clients navigate the financial distress process and emerge with a viable path forward.
Company directors should seek guidance from a qualified insolvency practitioner (i.e. a registered liquidator) as early as possible. The fact is that the sooner you seek options, the more you’ll have.
We speak with people and their advisors every day. We do this as complimentary and without expectation. If you or your clients face insolvency issues, reach out to your local Worrells principal. We're here to help.