Invoice Finance For Phoenix Businesses

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Gary Hemming

Author: Gary Hemming CeMAP CeFA CeFA CSP

20+ years experience in invoice finance

Securing funding for your business can be difficult at the best of times, and for those businesses that have suffered recent credit problems, it can make matters even worse. Although there are often valid reasons for the problems, a number of funders will be unwilling to lend.

Many lenders will frown upon any sort of previous problems, even if they are unrelated to the business they are funding. Where a Director has closed a number of companies in the background, lenders can take a similarly dim view.

In this guide, we will break down the major issues, how we can help and what you should do to get started.

What is a phoenix company?

‘Phoenix company’ is a term used to describe a business which has been started up to continue the trade of another company. The new business is usually used to pick up the activity and order book of a recently liquidated company, with no gap in trading.

They will usually have the same directors and shareholders and will continue trade with very little disruption to customers. The previous trading company will then usually enter into insolvency proceedings or will be dissolved.

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Why is invoice finance a good option for phoenix businesses?

As the lender is reliant on payment from third-parties, rather than the borrowing entity, funding can be much easier to secure than other types of finance.

Other types of funding, such as business loans and asset finance may be less straightforward, unless you offer significant amounts of security.

What is a pre-pack administration?

A pre-pack administration is a method of liquidating a company in the UK. A pre-pack administration involves the sale of some or all business assets prior to the appointment of an administrator.

The main difference between a pre-pack administration and a conventional administration is the fact that the sale of assets is pre-agreed. The administrator would usually look to negotiate the sale once appointed.

Where pre-pack administration is used to fund a phoenix company, trading will often continue through a new limited company with little to no break.

Keep reading: Invoice factoring or Invoice discounting.

What is a CVA?

A CVA (Company Voluntary Arrangement) is a debt management tool for insolvent limited companies. It works in much the same way as an IVA (Individual Voluntary Arrangement). It allows the company to pay its creditors over a fixed period. In order to be allowed to enter into a CVA, the company’s creditors must vote to accept the terms.

The terms of the CVA will be defined by an insolvency practitioner, who will calculate a suitable arrangement for all parties. The arrangement will cover the amount of debt to be repaid and the monthly payment.

The insolvencies practitioner has one month to complete this task and must send over the proposal to all creditors. To be approved, at least 75% of the companies creditors must agree. If agreed, the company will be allowed to continue to trade.

Failure to maintain the repayments can result in the liquidation of the company through a winding-up petition, which can be applied for by creditors.

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