When the court orders a winding-up petition against a company, the company go through various financing problem and interrupted cash flow. At this phase, the company needs a refinancing option to renew the overdraft facility, replace bank accounts, obtain a loan from the banks, discount finance, or raise working capital.
To pay off the company’s liability and its creditor, the company needs support. This support includes refinancing assets and opening new credit lines for businesses to grow.
What do you mean by refinancing?
Once the company has entered insolvency, it needs to reorganize its financial structure. Refinancing helps the company reorganize by restructuring or replacing initial debts. This refinancing can result in the improvement of the company’s financial position. It is the process of raising working capital for the growth of the business. It releases the company’s equity and raises money using its current assets.
By taking up the refinancing option at the time of winding up petition, a company can improve its credit policy, receive more interest, and secure more financing options. Their main goal is to reduce the company’s interest, reduce risk, increase cash flow, and provide a loan option.
The facility that refinancing provides
If you go for a refinancing facility, they provide many services in winding up petition. Compare the services and their advantages for better understanding.
Overdraft
It can be possible to convert the company’s overdraft into an increased limit, but the bank always tries to correct this overdraft into loans. You must back up your company with an experienced professional who can explain the bank, and they might want to help. This explanation can be difficult as the bank will see you as an investment, but you can save by opting refinancing facility. Don’t wait until the company is declared insolvent after the approval of the winding-up petition.
Banks do not like to lose their customer, so they can recover from overdraft only if a reasonable explanation is provided. The bank wants a detailed explanation and reasoning for carrying the procedure, and once approved, it can open many other financial options.
Discounting Invoice
In a refinancing facility, it is possible to sell off the debtors who owe your company to another company in exchange for advances or, say, as a loan. You can use these advances to pay the creditors or other liabilities of the company. The other company provides you with advancements that are usually 50-90% of the debtor’s amount and charge a nominal amount of 0.3-2%.
If you are not good at collecting the amount from debtors or cannot control them, this can be a good option for you. It is the easiest and flexible form of finance. If your company is suffering from winding up petition, it can help the company to grow again.
Asset refinancing
Lending unencumbered assets can obtain refinancing. These assets are the result of excessive depreciation charged on some assets than the actual amount. This asset can serve as collateral security to the lender when borrowing advances or loans. An asset like property, stock, machinery can serve as security in the above case and help in overcoming depression.
With a broker or professional help, you can find quick finance and can pay off your debts quickly. This refinancing helps the most when there are large bad debts, and to pay them requires a large amount of loan with excellent security like land or building.
Business Asset Disposal Relief (known as Entrepreneurs’ Relief until 6 April 2020) is a form of tax relief that can save directors and shareholders who are selling or closing their solvent company a small fortune on their tax bill.
Directors lending money
In refinancing, even the directors can provide loans to the company privately. You can use the loan as funds to carry out operations or pay the creditors while winding-up petition. The company may require security for taking a loan from the directors, but it needs expert guidance.
If the director lends loans, then the director is in control of the finance. They may or may not charge interest, and the company is free to pay off the loan a little at a time, depending on the cash flow. It is a cheap and quick way to finance and hence favourable. But if you opt for a second mortgage, you will have to show the lender company’s account, so be cautious.
Conclusion
If you want to rescue your company from winding-up a petition by paying the creditors or purchasing an asset, you can do it by refinancing. Refinancing will help you survive liquidation and grow again. Refinancing is an efficient option to restructure your finance system once again and start cash flow. With the help of specialists and professionals, you can revive your company again.
