Businesses struggling with debt may feel like declaring bankruptcy is their only option. Premature bankruptcy is an unfortunately common scenario but there are ways businesses can deal with unmanageable debt before declaring bankruptcy.
Temporary Debt Protection (TDP)
Businesses with debt they can't pay or are being taken action against by unsecured creditors can apply for TDP. TDP provides a six-month protection period where unsecured creditors can't take enforcement action to recover the money businesses owe them. Businesses are encouraged to use this time to seek advice from the Government's free financial counsellors, negotiate payment plans with creditors and consider other formal insolvency options which may work better for them.
Declaration of intention (DOI)
A DOI is a short-term option similar to TDP and protects businesses for 21 days from unsecured creditors. During this time, creditors can't take further action to recover their debts.
Debt agreement
A debt agreement details how businesses will settle their debt and is a flexible way to help businesses come into an arrangement without becoming bankrupt. A debt agreement means either paying a lump sum that may be less than the original amount owed, or repaying debt in instalments. Businesses can apply for a debt agreement if they:
Debt agreements can go for up to three years.
Personal insolvency agreement (PIA)
A PIA lets businesses pay off their debt in a way that suits their financial situation. It is similar to a debt agreement but a business' debt, income and assets do not have to be under a certain limit.
Keep in mind that while these methods are effective in helping businesses avoid bankruptcy, there are still consequences. While usually producing positive results, be sure to weigh up these options and consider whether the long-term effects of implementing them are worth avoiding bankruptcy.
