A recovery plan is the very best way to trade out of insolvency. If cash flow problems are truthfully judged as temporary then a recovery plan can be formulated. Recovery plan options are:
- Internal recovery plan
- External recovery plan
Internal Recovery Plan
This would normally be the most favoured option for any company. The recovery plan is formulated and implemented totally in-house. The directors contact creditors informally to explain the situation and request new terms for repayment of debts. This must be linked to innovative financial measures to improve profitability such as new trading initiatives which are explained to the creditors. Hopefully the business will recover to everyone’s advantage.
External Recovery Plan
This involves employing a company to provide specialist recovery services. The company acts as ‘honest broker’ assisting in the formulation of a recovery plan and overseeing its implementation. The use of a third party company in this way helps to provide specialist and expert advice as well as transparency to creditors, shareholders and employees alike.
Neither class of recovery plan involves formal legal procedures.