Dealing with the personal weight of corporate Insolvency

corporate insolvancy

Many articles focus on the financial consequences of corporate insolvency but little is written about the emotional consequences of the strain and stress that business owners go through in the period leading up to insolvency and beyond and the psychological effects of the whole experience.

Working with company directors and business owners for over thirty years, I have seen most of the emotional consequences of corporate insolvency and the common thread throughout is that after the initial negative reactions, comes the realisation that it is possible to move on and start again.

The actual insolvency event is the culmination of many months, sometimes years of financial struggle to keep the business going and this can take its toll on not only those directly involved but also those around them.

A Difficult Time

Very often business owners will have invested much, if not all, of their personal wealth into the company and the point when they have to admit that they cannot continue is extremely difficult.  All the while they were able to continue there was hope that things would improve, that the large profitable order that they were waiting for would finally arrive.  The realisation that they cannot go on is very difficult.

It is not only the personal financial consequences of insolvency that cause stress and anxiety but also the sense of letting others down and feelings of failure which can lead to feelings of depression, isolation and low self-esteem.

Protecting Personal Wealth

I have seen too often corporate insolvency lead to personal bankruptcy.  I understand why this happens but it need not happen.  By definition when someone sets up a business they believe it will succeed and it is this blind self-belief that results in them re-mortgaging their home and giving personal guarantees to others such as banks, finance companies and landlords.

If there is a requirement to inject personal funds, think about taking out a “director’s debenture” before putting the money in.  This means that if things go wrong, the director stands a better chance of being repaid.  Fight hard against giving personal guarantees.  Look at alternatives, even if this means slower growth.

If things are getting tough, stand back and consider whether there is really a business to fight for or has the market moved on.  Consider, with hindsight, whether there was ever really a business there at all?

These are difficult decisions to make but if called correctly, they could just save the family home.

The Future

Corporate failure has to be put into perspective and as difficult as it may seem at the time, it is a period to focus on what is really important.  There will be future opportunities and what a director is feeling at the time has been felt by many others before and will be felt by many after.

The majority of business owners and directors that I work with start again and what the insolvency process does is give them a fresh start.  Yes it is going to be difficult and cash flow will be tight but it means an end to sleepless nights wondering how historic debt is going to be repaid.  It means that in the future, a business owner will be working for themselves and their family, not old creditors.

Editor’s note: This article was contributed by Tony Mitchell FCCA, MIPA, FABRP. Tony is a Chartered Certified Accountant and Licensed Insolvency Practitioner with over 30 years’ experience of working with companies in financial distress. He has worked with all sizes of companies from PLCs to single owner businesses and also helps in personal insolvency situations.

photo credit: h.koppdelaney via photopin cc

4 thoughts on “Dealing with the personal weight of corporate Insolvency”

  1. Many years ago, I worked for a small electronics company that was undercapitalized. Juggling the finances left a residue of emotional consequences that I still feel nearly 35 years later. Every time the phone rang, it was a request for payment. I managed to get vendors to trust me and work under these circumstances for 9 months while I helped sell the company to a NYSE listed company.

  2. Protecting your personal wealth is a huge part of surviving starting a small business. The emotional toll that insolvency can have is extreme, but if you can at least protect yourself from bankruptcy it can be easier to navigate. Thanks for the insightful post!

    1. @Leonard: Thanks for popping by, Leonard and glad you liked the post. You are of course right: separating the business finances and the personal finances is the key. Insovancy and bankruptcy together will be really hard to take.

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