When a company is suffering from severe financial distress, the outlook can seem very bleak. If a major contract has fallen through or if a large supplier has folded, it can feel like the business is no longer capable of generating wealth. Until all the options have been explored, it is unwise to succumb to too pessimistic an outlook. If the right kind of advice and assistance is obtained, the future might not be as dark as it can seem.

At Cooper Matthews we know that various options can give embattled company directors a new chance. Furthermore, many directors who have had failing firms have gone on to prosperous futures, sometimes with businesses very similar to those which hit trouble. Nor is there anything illegal or ethically questionable about processes like phoenixing and pre packing. If these processes are carried out properly it is quite possible for the new enterprises to develop healthy cash flow.

It might seem a little odd to think about success when a business is in considerable difficulty, but the right attitude can really pay off. It is understandable to adopt fatalistic views when one is receiving bad news or urgent demands to pay that cannot be met. Nonetheless, if the goal of eventual success is forgotten it only makes the work which needs doing more arduous and uncomfortable.

It does make it slightly easier to think that many others are unfortunate enough to currently be in similar circumstances. Furthermore, the fact that many highly successful individuals and companies have been through this trying phase can provide genuine motivation.

business debt, phoenixing, pre packing

The process of Pre Pack Administration (also known as ‘Phoenixing’) has become far more prevalent in recent years. This process basically involves a new company being formed in order to buy the assets and contracts of a failing company. All outstanding debt is left with the old business which is consequently liquidated, thereby enabling the new company to trade on in debt free circumstances.

Dealing with an ailing company in this way has several advantages:

The main advantage of Phoenixing is that the new company is free of the old company’s debts, so unlike a CVA, there is no obligation to make any allowance for debt repayments. In addition, the Phoenix company can ‘start afresh’ with new procedures and ways of working that are more practical (and financially viable) than those used by the old company, and unfavourable property locations or adverse leasing agreements will no longer be an issue. One final advantage of the Phoenix process is that it can also be a very good way to maintain job prospects for employees who will need to make a transition from the old failing company.

With so many advantages, it is no surprise that more companies than ever are now using the Phoenix process to manage their failing companies. Of course, it needs to be remembered that this process will not always be the best solution for every company that finds themselves in such a situation. To learn more about tackling business debt, browse our pages here at Cooper Matthews.