Restarting after insolvency
What happens, what your duties are, what it means for you personally, and how people actually rebuild afterwards.
If your business has failed, or is failing, the first thing worth knowing is that this is common, survivable, and not a verdict on you as a person. A great many capable people have been here, and most of them worked again.
This page is practical. What happens, what your duties are, what it means for you personally, and how people rebuild.
One caution before any of it. Insolvency law is national and the details differ substantially between European countries. Nothing here is legal advice. Involve a licensed insolvency practitioner in your own jurisdiction earlier than feels comfortable, because almost every option that protects you closes as time passes, and the ones still available tend to get worse.
Knowing which side of the line you are on
There are broadly two tests, and most jurisdictions use some form of both. Can you pay your debts as they fall due? And do your liabilities exceed your assets? Failing either one puts you in a different legal position from the one you were in last month, whether or not anybody has told you so.
Owners generally know before they admit it. The recognisable signs are paying suppliers by how loudly they complain rather than by when payment is due, using money received for one job to finish a previous one, and finding that the arithmetic only works if a particular payment arrives on a particular day.
What can still be saved, if you act early
The word insolvency suggests one outcome. In practice there is a range, and which options remain open depends almost entirely on how early you move.
- An informal arrangement with creditors. If the problem is timing rather than viability, most suppliers prefer a realistic payment plan to a formal process in which they recover very little. This requires you to approach them before you have missed several payments, which is precisely when it is hardest to do.
- A formal restructuring framework. Every EU member state has been required to make a preventive restructuring framework available, intended to let a viable business restructure its debts before it becomes insolvent. The names, thresholds and mechanics vary considerably by country. Ask your advisor what yours is called and what the entry conditions are.
- Selling the viable part. A failing group often contains a profitable division, a customer book or a piece of equipment that somebody wants. Selling it while you still control the timetable produces more than selling it in a formal process, where it will be marketed by somebody with a duty to be quick.
- A formal insolvency process. Administration, liquidation or their national equivalents. Entered properly, these are orderly and they end the uncertainty. Entered late, they realise less for everybody and expose you to more questions about the preceding months.
What it means for you personally
These are the three things owners actually lie awake about, so here they are answered directly rather than reassuringly.
- Personal guarantees survive the company. The company's debts die with the company. Your guarantees do not. Most owners have signed more of them than they remember, across bank facilities, equipment finance, leases and sometimes trade accounts. Get the complete list this week and read what each one actually covers. You cannot plan around exposure you have not measured.
- Disqualification follows conduct, not failure. Disqualification regimes are national and they vary, but where they exist they generally respond to conduct rather than to the bare fact of a failure. What tends to attract scrutiny is specific behaviour: trading while knowingly insolvent, paying yourself or connected parties ahead of creditors, or failing to keep proper records. Ask your advisor what the regime is where you are, then behave in a way that stays clear of it from today onward.
- Your home depends on what you signed. This is entirely a question of guarantees and charges, and it varies by country and by how you hold the property. It is the first thing to establish, because it determines how much time pressure you are genuinely under, and owners routinely assume the worst when the answer is better than they fear, or assume they are safe when they are not.
How you behave now is the asset you keep
This is the least legal and most useful section on the page.
How you conduct yourself in the final months of a failing business determines your reputation far more than the failure itself does. Creditors talk to each other, and in a small sector everybody will know within a year what kind of person you were when it went wrong.
Being straight with people who are about to lose money is difficult and it is worth doing. Answer the calls. Do not make promises about payment that you know depend on something unlikely. Do not favour the creditors you like, which is a legal problem as well as a moral one. Keep your records in order, including the uncomfortable ones.
Owners who did those things find that suppliers deal with them again, that former customers take their call, and that people who lost money will still give a reference. Owners who stopped answering the phone find the opposite, and it lasts much longer than the debt did.
Starting again
In most jurisdictions you are permitted to start another business, and many people do. There are some real constraints worth knowing before you begin rather than afterwards.
Practical constraints and how people work around them
- Reusing the failed company's name is restricted in several countries, sometimes with criminal penalties. Check before you register anything, including a trading name that merely resembles the old one.
- Buying assets back from the insolvency process is legitimate and it is also scrutinised. It must be at proper value, at arm's length, and documented. Done correctly it is a normal transaction. Done casually it is the thing that turns an ordinary failure into a personal problem.
- Banking and credit will be harder for a period. Expect to need personal funds or a partner with a clean record, and expect suppliers to want payment in advance for a while. Both ease with a trading history.
- Your knowledge and your relationships survive the company. They are usually the most valuable thing you carry out, and they are the reason second businesses are often better run than first ones.
- Check what you signed about competing. Some restructuring and sale agreements contain restrictions on operating in the same market. How far a court will enforce one varies by country and by how narrowly it was drawn, so treat it as a real constraint until a lawyer tells you otherwise.
One further thing, offered without any attempt to soften it. People who have been through this tend to run their next business with much tighter attention to cash, to customer concentration and to who they have given guarantees to. That is expensive knowledge and you now have it. It is not compensation for what happened, but it is real.
If cash was what caught you, the mechanics of how profit and cash come apart are worth reading properly before the next one. Cash flow and working capital
What to do this week
In this order
- Speak to a licensed insolvency practitioner. Most give an initial conversation without charge, and the earlier you have it the more options remain.
- List every personal guarantee and charge you have given, and what each one secures.
- Stop taking on new obligations you are not confident you can meet. This is the single action that most affects your personal exposure.
- Write down what you owe, to whom, and when. Not an estimate. The actual figures, from the ledger.
- Identify anything in the business that somebody would pay for, and tell your advisor about it in the first meeting.
- Tell someone. Not for your business, for you. This is genuinely difficult and doing it alone makes worse decisions more likely.
If part of it is still viable
Where a business is distressed but not finished, the practical question is which part of it somebody would pay for, and what that part is worth. A restructuring advisor will ask you for exactly that, and having a defensible figure before the conversation is better than assembling one during it.
Our valuation is free and takes about ten minutes. If the answer is that there is nothing here, that is a real answer too, and you will have it quickly and without paying for it.
Step one of three: see your number, free, with no account and no name.
See what it's worth