Managing Your Creditors

7. Financial Difficulties

7.1 If you are in financial difficulties, or expect to be, get professional advice quickly.

• Consult a reputable firm of insolvency practitioners. Contact the Association of Business Recovery Professionals (020 7566 4200) or the Insolvency Practitioners Association (020 7623 5108). See Insolvency.
• Directors who allow their limited company to continue trading with no reasonable prospect of avoiding insolvent liquidation may be personally liable for 'wrongful trading'.They also run the risk of 'creating preferences'. For example, if you paid back a director's loan in preference to paying a trade creditor this would probably be a preference - in which case the money would have to be repaid. (See Directors' responsibilities.)

7.2 Agree extended credit with your suppliers.

• The further ahead you can plan this, the better. Reassure your suppliers that the problem is only temporary.For example, you might explain that you are taking on a large order which will cause a hole in your cashflow in four months' time. Or you might be recruiting and training a new salesman, which will reduce sales in the short-term but will boost sales thereafter.
• Agree a plan, then stick to it. Don't be too optimistic.
• You will probably be advised to part-pay several creditors, rather than paying one and ignoring the rest. Aim to achieve some visible progress in the eyes of all the creditors. This will help buy you time to trade your way out of the difficulty.

7.3 Keep your bankers informed, to avoid any panic at their end.

• If you have not done so already, investigate the scope for extending your borrowings. (See 4.4.)

7.4 If you receive any writs, immediately ask your solicitor or accountant how to proceed.

See Being sued.