A corporate insolvency service firm might be the management’s only chance of saving a company suffering from acute cash crunch. Some business owners falsely believe that declaring bankruptcy is the only way to better their financial situation. However, insolvency is a much better choice as it allows the management to explore new options that might help savage the company that they have built so lovingly.
Bankruptcy vs insolvency
Bankruptcy and insolvency are not interchangeable terms. Insolvency is a state of financial affairs wherein the business is unable to pay the bills, yet is able to function normally. Bankruptcy is a financial state where the court of law dissolves the company as it is not able to meet its debts and responsibilities any more. Although insolvency often leads to bankruptcy, it does offer a final chance for the business to redeem itself. Corporate insolvency applies to both business establishments and individuals where the businesses are considered legal entities that have similar rights as a person.
Insolvency can occur because of two reasons:
Balance sheet insolvency
In this case, the corporation’s liabilities and debts far exceed the company assets. Here, the business still retains its purchasing power since it has running cash flow in place. However, in order for the business to escape insolvency and subsequent bankruptcy, the management should look into obtaining financial assistance from external entities.
Cash flow insolvency
Cash flow insolvency occurs when the corporation is incapable of paying back its debts on the due dates. This is generally reversible by selling company assets or taking out a loan against company assets. This additional cash generation will enable the business to pay off its outstanding debts fitfully.
How can corporate insolvency services help?
An insolvency service firm can help a business in a number of ways; the exact nature of help would depend on the kind of insolvency that a particular business suffers from currently. The severity of the situation also plays a vital role in developing the right plan of action to suit the business.
More often than not, you will be expected to take out a loan against the fixed assets of your business. You can also make voluntary arrangements via which you can pay a part of your debts to creditors without satisfying the entire debt. The creditors will write off the remainder of the debt. You may also choose to sell off the business assets altogether in order to pay off your creditors. An insolvency service can help you with all these and more, irrespective of how you choose to deal with your debtors.
Reliable insolvency experts will guide you through the entire process of claims processes and will ensure swift action when you begin liquidating the company assets. They will also help you remove any bureaucratic barriers that may cause hindrances during the litigation procedures. Monitoring the progress of the case (and closely) is critical to ensure that the necessary processes are streamlined effectively; this goes a long way in assuring minimal complications.