Harper James advises UK businesses on the legal and commercial issues that arise when a borrower enters financial difficulty, including lender negotiations, restructuring and insolvency. Early action gives the borrower and lender time to assess the position, protect value and agree a realistic route forward under the laws of England and Wales.
Warning signs include missed or delayed payments, worsening cash flow, unpaid tax, pressure from suppliers, breaches of financial covenants and demands for additional security. The board should prepare an accurate cash-flow forecast, list all debts and security interests, review loan and facility agreements, and identify upcoming payment dates. Directors must also consider their duties when insolvency is a real risk, with the interests of creditors becoming increasingly important.
A borrower should contact its lender promptly and provide reliable management information. The discussion normally covers the cause of the difficulty, available assets, expected receipts, trading prospects and the repayment plan. Possible forms of forbearance include a short payment holiday, revised repayment dates, temporary interest-only payments, a waiver of covenant breaches, an amendment to facility terms or additional security. Any agreement should be recorded in writing, including the duration of the arrangement, reporting requirements, default rights and fees.
Where an informal arrangement is insufficient, the borrower can assess a wider restructuring. Options include refinancing, an agreed sale of assets, a company voluntary arrangement, administration or a restructuring plan. The appropriate route depends on the business model, creditor support, available funding and the value of continuing to trade. Lenders can enforce contractual rights after a default, subject to the facility documents and applicable law. Enforcement may include appointing an administrator under a qualifying floating charge, taking possession of secured assets or issuing proceedings for payment.
A structured review should cover the facility agreement, guarantees, debentures, intercreditor arrangements, personal guarantees and security over intellectual property or other assets. Legal advice also supports negotiations, prepares waiver or amendment documents, checks directors’ duties and coordinates with insolvency practitioners where necessary. Borrowers should keep lenders informed, avoid preferential payments without advice and preserve records showing the basis for decisions. These steps do not remove the debt, but they create a clear framework for assessing viable repayment and restructuring options.