My company's got financial problems. What can I do?

You know you've fundamentally got a good company but something's happened to put it in serious financial difficulty. Perhaps a customer hasn't paid a large bill, or has raised a dispute. But you've still got suppliers and employees to pay, and perhaps the landlord as well if you're leasing premises. What are your options?

You've heard that you might be able to put your company into liquidation and immediately start up another company, you might hope to simply carry on trading as long as you can and keep your fingers crossed that things will improve, you might just get angry about the whole thing and end up sending letters and emails, demanding payment or trying to address the dispute, that you are likely to regret later.

In fact, you could get into serious trouble if you took any of these steps.

If you put your company into liquidation, all sorts of questions could be asked about whether you've transferred any assets out of your old company into your new company. If you have, or a court believes you have, you might have to pay back the value of these assets yourself. And it's not always easy to tell exactly what assets are, or how they should be valued.

If you simply carried on trading but, in the end, your company still went into liquidation or some other insolvency procedure, you could end up being accused of "wrongful trading" and that might result in you having to pay lots of money to your creditors to make up the shortfall. It might even lead to you being disqualified as a director.

If you fired off lots of angry letters and emails, demanding payment or trying to tackle the problem yourself you could just enflame the situation. Such action probably wouldn't put your case in the best light anyway and could backfire later if anything went to court.

The single most important thing you should do is take early advice from a solicitor who specialises in insolvency law, preferably someone who's had years of experience of working on both side's of the tracks: for people like you, trying to save a company, and for Insolvency Practitioners, making people like you pay personally towards the "company's" creditors. This way they will know the types of arguments that are likely to be raised against you and how best to counter them.

A specialist solicitor will be able to advise you on how quickly you are likely to be able to collect in the money you're owed and whether you've got a good case to be paid by any customer who's raised a dispute. He would then be able to guide you through any court process and make sure your case is put in the best possible light.

Such a solicitor will also be able to advise you on the various legal measures you can take to keep your company going, fend off creditors and the landlord, and how to reduce the risks to you personally. They will, for example, be able to tell you how the new Administration procedure, which came into force on 15th September 2003, can help you achieve these aims.

The new procedure has been designed to help rescue viable companies. An Administrator will be appointed to supervise the management of your company with the purpose of rescuing it as a going concern. Only if that's not possible, will he try instead to achieve a better result for the companies? creditors than in a winding-up, perhaps by keeping the company going whilst selling off its assets.

Under the new procedure, you can put your company into Administration quickly and cheaply, simply by filing a Notice of Appointment at court; you no longer need to apply for a court order. Doing this stops your creditors from taking any legal action against your company or from continuing any court case they had started. No one is allowed to repossess any goods or enforce any security; even the landlord cannot forfeit the lease or take your goods out of the premises.

All this is designed to give your company a breathing space so that an Administrator can try and rescue it. He must do so as quickly and efficiently as he can and, in any event, within 12 months.

There are other insolvency procedures you can take too and, as no two companies or situations are the same, you will need to discuss your position in depth with your solicitor. They will want to know exactly how your company got into difficulty and why you believe it is essentially a good company and worth saving. They will want to have a good idea of your "company's" financial position and so you should let them have your last few years? accounts including any up-to-date management accounts. They will then be able to advise you on what's best for you and will probably work together with an Insolvency Practitioner to help you achieve the best outcome for you and your company.

1. Take specialist advice and do so quickly. Insolvency law is a specialist area of the law. Your regular legal adviser may not be able to help or be up to date with the latest legislation.
2. Understand all of your options before making any decisions.
3. Avoid trying to deal with financial difficulties or commercial disputes "unofficially" ? 9 times out of 10 you'll be the one who loses out.

This Fact Sheet was drafted by Gary Cousins the Woolley & Co insolvency and commercial disputes specialist. Gary can be contacted on 0121 778 3212 or by email on gary.cousins@business-lawfirm.co.uk