Is Your Business Currently Insolvent?

Statutory solutions

There are a variety of solutions set out in the legislation, primarily the Insolvency Act 1986. These solutions are generally binding on the parties involved and there is a body of case law to assist with resolving any disputes. By entering into a statutory insolvency solution as soon as they become aware that a Company is insolvent, Directors are usually protected from personal liability for the Company’s losses, although there are still circumstances where their prior conduct could leave them liable financially and/or subject to disqualification proceedings.

Administration

An Administration (ADM) is designed to hold a business together while plans are formed either to put in place a financial restructuring to rescue the Company, or to sell the business and assets to produce a better result for creditors than a liquidation. Administration can also be used where neither of these objectives can be achieved, simply as a mechanism to liquidate assets and distribute the proceeds to secured or preferential creditors, but this is not the primary purpose of the law.

Once an Administrator is appointed, they take over the running of the Company from the Directors and are responsible for any decision to continue or discontinue trading and they have control over how the Company and/or its assets are disposed of. The ability to continue trading depends on the availability of funds for working capital, the willingness of existing suppliers and customers to deal with the Company in administration and other factors specific to the Company’s business.

Company Voluntary Arrangement

A Company Voluntary Arrangement (CVA) is a procedure which enables an insolvent Company to reach an agreement with its creditors to delay or compromise the payment of its debts.

A CVA is flexible and can be adapted to meet the needs of any business. In essence, a CVA will replace the terms of the Company’s existing contracts with its creditors with new terms as set out in the CVA proposal. For example, the proposal might require the Company to pay a fixed monthly sum into the arrangement for a set number of years so that creditors receive a minimum dividend. While the payments are maintained and no further action is necessary, the Directors retain control of the Company and once the arrangement is successfully concluded the Company remains in the control of its existing members and management.

Creditors will usually agree to support such a CVA where it can be shown they will achieve a better outcome than if the Company was liquidated and the business and assets sold. They may also want to see changes to the management and operations of the Company to ensure that similar difficulties will not arise again and the Company will successfully complete the CVA period.

Creditors' Voluntary Liquidation

A Creditors' Voluntary Liquidation (CVL) is the process where the Directors of a (usually) insolvent Company can voluntarily take steps to wind up the Company. The Directors convene meetings of the Company's shareholders and creditors to consider resolutions to wind up the Company and appoint a Liquidator.

Once appointed, the Liquidator takes control of the Company from the Directors and although a short period of trading may take place to complete outstanding contracts, it is more common for the Company to cease trading and its assets are sold to repay the costs of the liquidation with any surplus being paid to creditors in the priority set out in the legislation.

This would be a good option for your company if it is unable to pay its bills as and when they are due.

We will work with Director(s) to realise assets of the company, whilst finalising the closure of the company including, but not limited to, pensions, VAT accounts and distributions to creditors of the company.

Compulsory Liquidation

Compulsory Liquidation (CWU) is the process where the court orders that the Company is wound up. The Official Receiver is initially appointed Liquidator although they may subsequently be replaced by an insolvency practitioner.

Once appointed, the Liquidator takes control of the Company from the Directors and although a short period of trading may take place to complete outstanding contracts, it is more common for the Company to cease trading and its assets are sold to repay the costs of the liquidation with any surplus being paid to creditors.