How to short settle your debts

Short settling a debt can only be achieved by agreement with the creditor.  You will need to put forward a powerful argument to the creditor, visibly demonstrating a higher and/or more certain cash outcome for him compared to that which could be achieved should they push for their money in other ways, such as forcing you into formal insolvency.  You also need to show that this is a one off event, never to recur: this means providing an honest explanation why you are having to do his and why and, if you are to continue dealing with the creditor going forward, what’s being done to make sure it doesn’t happen again.  For these reasons, such settlements are generally best negotiated by someone outside of the existing management team, such as a new investor or an insolvency practitioner.

Short settlements work best where:

• Your debts are concentrated among a small number of creditors;
• Either there is little chance of the creditor’s debt being repaid in full in any formal insolvency or the timing of repayments is highly uncertain.  At the moment, the banks are particularly receptive to short settlement offers because of the certainty and finality it brings to an uncertain situation;
• Creditors trust you.  This means they have no concerns over your conduct as directors and there’s been regular and honest dialogue with the creditors in the period leading up the offer.