The debts have mounted up. You’re getting letters from several different creditors on a weekly basis, but cash flow problems mean that you’re unable to service your company’s liabilities. Then, one day, you receive an altogether more authoritative notice: one of your creditors has issued a statutory demand that their debt be repaid. If you don’t cough up, they’re going to take you to court. Fortunately, there are steps that concerned directors can take if they wish to avoid being subject to a winding up order from the High Court.

Step 1: Contact a Business Debt Consultant

The first thing to do is meet with an experienced professional whose job is to help companies regain a profitable state. Amongst other services, these advisors will be able to provide you with an expert and detached view of your company’s finances and corresponding plan for business recovery, allowing you to trim excess spending and reorient your projections for the future. They will also be able to assist you with the following steps, which can be complicated if attempted alone.

Step 2: Can You Beat The Statutory Demand?

Once you receive a demand from your creditor, you have 18 days to dispute either the amount to be repaid or the propriety of the demand itself. A consultant will be able to advise you on your chances for success using this route. If you cannot have the demand set aside on either of these grounds, it’s time to move on to step 3.

Step 3: Can You Avoid a Winding up Petition?

21 days after the statutory demand is issued, and provided you do not dispute it, the creditor can apply to have your company liquidated. This should be avoided if possible, through the negotiation of more favourable repayment arrangements with the creditor; either informally or with a Company Voluntary Arrangement (CVA). The latter is a legal mechanism whereby a licensed insolvency practitioner will formulate a plan for repayment and present it to your creditors. Provided 75% agree, you will be given up to 5 years to repay the debt using future profits. The use of a CVA automatically stalls all legal proceedings related to your company’s debts. Whether you choose to formalise the negotiations in this way or attempt something less drastic, a business recovery consultancy will act on your behalf, taking a strong and expert approach whilst maintaining good will – crucial for the future success of your company.

Step 4: The Last Resort

If it is inevitable that business recovery will fail and your company will be liquidated by the courts, it is worth considering voluntary liquidation and the formation of a phoenix company, which would purchase all the assets of the failing business whilst leaving the toxic debts behind. Obviously, this involves some fairly complicated legal trickery, and so it is essential to obtain advice.

Step 5: Onwards and Upwards

Hopefully, through taking these steps, you’ll be able to relaunch your business and remain profitable. All the best for the future.

Tom Omar is an insolvency practitioner and blogger. He has over 20 years’ experience in advising entrepreneurs on company debt issues.