Nearly all businesses will go through times of difficulty during their trading lifetime. The past few years have proved particularly challenging, with years of covid and rising inflation continuing to have a knock on effect, so it is not surprising that so many companies face financial difficulties. There are strategies that can help improve a struggling business, and even a few tweaks here and there can make a real difference to the success or failure of a business on the edge. In this article, senior Insolvency Solicitor Eleanor Stephens explores the different recovery strategies available to distressed businesses.
If you’re reading this because your business is under financial pressure and you’re looking for practical ways to turn things around, our insolvency solicitors can help. We’ll talk you through your options, from informal restructuring to formal insolvency procedures, and work with you to build a recovery plan that gives your business the best chance of long-term success.
Contents:
- Business recovery funding options: refinancing and short-term liquidity
- Choosing a business recovery route: when to move from informal to a formal recovery route
- CVA for business recovery: when it fits and how it works
- Restructuring plans: advanced business recovery tools
- Moratorium and administration: creating breathing space for recovery
Business recovery funding options: refinancing and short-term liquidity
Short-term liquidity is often the first lifeline when a business hits turbulence. Refinancing or temporary funding can buy time to deliver a turnaround. Liquidity might come from resetting an overdraft, drawing on receivables finance, releasing value from inventory through asset-based lending, or injecting shareholder loans.
Directors’ guarantees, fees and personal exposure should also be reviewed carefully if you do decide to refinance or borrow funds. Trading personal risk for a few extra weeks of cashflow only makes sense if the turnaround plan is credible, modelled and achievable.
Choosing a business recovery route: when to move from informal to a formal recovery route
If short term liquidity is unlikely to change the long term prospects of your business, you should make choice between an informal restructuring and a formal insolvency processes. If the underlying business is sound but needs to compromise with landlords or trade creditors, a Company Voluntary Arrangement (CVA) can allow management to stay in control while cutting liabilities.
Where the capital structure is more complex, multiple secured lenders, shareholder disagreements or dissenting creditor classes a restructuring plan may be the right tool.
And if you need immediate protection from creditor enforcement while a rescue is designed, a stand-alone moratorium or administration can create breathing space.
Whichever route you consider, speed and transparency is required. Delays shrink your options. Build clear decision milestones into your calendar: if a key KPI isn’t met by a set date, you trigger the next step. That structure helps boards demonstrate control and gives weight to negotiations, creditors respond when they see credible alternatives with clear timelines.
CVA for business recovery: when it fits and how it works
A CVA is a statutory contract with unsecured creditors, supervised by a licensed insolvency practitioner. Directors remain in control of day-to-day management, while the practitioner acts first as nominee (to prepare the proposal) and then as supervisor once it’s approved.
For a CVA to pass, at least 75% by value of creditors voting must support it, and fewer than half (by value) of unconnected creditors can oppose. Once approved, it binds all unsecured creditors, even those who voted against.
CVA proposals work best for businesses that are viable but burdened by fixed costs, for instance, multi-site operators seeking to rationalise leases, or companies needing to ring-fence arrears while continuing to trade. Preparation usually takes several weeks, followed by a monitored period to ensure compliance.
Restructuring plans: advanced business recovery tools
For larger or more complex capital structures, a CVA may not provide enough flexibility. Restructuring plans are court-supervised tools that can deliver broader restructurings.
A restructuring plan goes further: if certain conditions are met, the court can “cram down” dissenting creditor classes, provided they are no worse off than in the relevant alternative (typically administration or liquidation) and the court considers the overall plan fair.
Moratorium and administration: creating breathing space for recovery
Sometimes the first step to saving a business is stopping the clock. The stand-alone moratorium introduced in 2020 gives companies up to 20 business days of initial protection (extendable) while they explore rescue options. A licensed insolvency practitioner acts as monitor, ensuring the business remains likely to be rescued as a going concern. During this period, certain creditor actions are restricted, but directors retain control, a rare balance between protection and autonomy.
If the situation requires external management or a broader restructuring, administration may be appropriate. It automatically creates a moratorium from the moment of filing, transfers control to an administrator and opens several routes: rescuing the company as a going concern, achieving a better result for creditors than liquidation, or realising assets to make distributions.
Administrations can lead to sales, including pre-packs, where parts of the business are sold immediately to preserve value. Employment rights are a key consideration, TUPE usually applies on a going-concern sale, preserving employee terms, whereas it typically does not in a closure scenario.
How can we help?
If your business is facing financial difficulties, it is important that you take steps to turn things around fast. Procrastination can kill a business, and the sooner you reflect and take action, the more chance that any issues can be rectified.
At Harper James our Recovery and Insolvency Solicitors have many years’ experience in the options available to you if you want to use a formal recovery route, and our Corporate and our Employment and our Commercial Property teams regularly work with businesses to adjust corporate structures, review staff, and sell or lease commercial premises to work better for your business. We also work with other professionals in the business turnaround sector if you require more specialist knowledge relating to your business. Contact one of our team for a chat today.
