Where the company is clearly insolvent, the right course of action will depend upon a number of factors:
- Is the situation capable of being turned around?
- Do the directors and shareholders see a future for the business?
- Have the stakeholders accepted that the situation is untenable and trading should be brought to early closure?
- Administration – is a business rescue tool governed by the Insolvency Act 1986 [the Act]. It provides an insolvent company with a period of statutory protection from creditors, allowing the Administrator, working with the directors, time to formulate a strategy going forward. Getting the company into Administration does not require an application to Court and can be done very quickly, thereby getting early protection from pressing creditors. The objectives of the Administration are laid down in the Act and can include the rescue of the company as a going concern or the sale of the company’s business and assets.
- Pre-Pack Administration – an arrangement under which the sale of all the business and assets is negotiated with a purchaser [can be a third party or the existing management team, or a combination of both] prior to the appointment of an Administrator, and the Administrator effects the sale immediately on, or shortly after his appointment. Such a Pre-Pack Sale does not require the approval of the court or the creditors although there are safeguards in place to ensure that such a sale is both legal and transparent. Done properly, the process gives continuity and maintains the value in the business, as well as preserving jobs.
- Company Voluntary Arrangement [CVA] – a highly flexible business rescue tool governed by the Insolvency Act 1986 where a company enter into a legally binding agreement with its creditors. It gives the company breathing space in which to try and trade out of its difficulties or give it time to sell its assets at better than “fire sale” prices. Payments to existing creditors are frozen and the directors are left in control of the company’s affairs whilst a Licensed Insolvency Practitioner will act as Supervisor ensuring that the agreement that has been reached is adhered to by all sides. Quite often creditors will be required to write off significant amounts of debt as part of the CVA agreement.
- Creditors' Voluntary Liquidation [CVL] – a formal winding up of a company’s business affairs governed by the provisions of the Insolvency Act 1986. The process is instigated by the directors of the company and the company is actually placed into liquidation by way of special resolution of the shareholders. A meeting of creditors is also held at which a full report is given concerning the company’s assets and liabilities and an explanation of the reasons for the insolvency of the company. A Licensed Insolvency Practitioner is appointed as Liquidator and his main function is to realise the assets and distribute monies to the creditors. In addition, the Liquidator will make a report to the Insolvency Service on the conduct of any party that has been a director or acted in the capacity of a director in the three years leading up to the commencement of the liquidation.
Once you have made contact with us, we can guide you through the various procedures and provide you with our considered advice helping you to choose the correct course of action to fit the circumstances.
Whether you are a director looking for protection and turnaround solutions or simply seeking the most cost efficient way of drawing a line under a company’s business difficulties, we will help you make an informed decision. With our additional advice, we will help you make the right decision.
- Members' Voluntary Liquidation [MVL] – a formal winding up of a solvent company's affairs but still governed by the insolvency act of 1986. Usually undertaken to realise value for the benefit of shareholders in a tax efficient way, or as part of a group re-structuring, or simply because the company is no longer required.
Where you are clearly insolvent, the right course of action will depend upon quite a number of factors:
- Exactly how much do you owe to your creditors?
- Are you in paid employment or self-employed?
- Are you in a business partnership?
- After payment of ongoing household expenses, is there a surplus of income at the end of the month?
- Will the creditors be paid in full or must they agree to right-off a substantial part of their debt?
- Do you know a third party/family member who will provide a lump sum payment to offer to creditors by way of a “full and final” settlement of all debts? i.e. creditors will accept less than they are entitled to in return for an early cash payment.
IVA [Individual Voluntary Arrangement] – an alternative to bankruptcy, where you can enter into a legally binding agreement with you creditors. Existing debts and interest are frozen once the IVA is accepted by creditors who thereafter cannot take legal action against you for recovery of outstanding debts. Usually you will pay surplus income over each month to a Supervisor who will then pay dividends to the creditors. Once the IVA is completed [usually after 5 years], any outstanding sums due to creditors are written off.
DMP [Debt Management Plan] – a DMP is an informal arrangement between you and your creditors. It is not legally binding and usually no part of the outstanding debt is written off. In addition, interest may continue to run on outstanding debts. A DMP will certainly reduce your existing monthly payment to creditors and is particularly useful if you just need a short stay [say 6-9 months] to sort out your financial affairs so that you can recommence payments at the normal contractual rate with each creditor. Unfortunately, creditors can change their mind at any time as well as commence legal proceedings at any time to recover their debt.
Administration Orders – your total debts must not be more than £5,000 and one of your creditors must have obtained a County Court Judgement against you. On your application, the court may make such an order [the Administration Order], whereby you pay weekly or monthly payments into court and the court will then disburse the monies [after taking a fee of up to 10%] to your creditors. Details on how to apply for an Administration Order are available at your local county court.
DRO [Debt Relief Order] – the DRO is designed for Insolvent Individuals who have no assets [less than £1,000], little surplus income [less than £50 per month] and liabilities of less than £20,000. The court is not involved in DROs which is a scheme run by The Insolvency Service [a government agency]. The DRO lasts for 12 months and during that time creditors named in the order cannot take action to recover their debt. At the end of the period, the debts listed in the DRO will be discharged and the Insolvent Individual will be free from those debts. Please refer to the booklet “Guide to Debt Relief Orders” in our Library Section and visit The Insolvency Service web-site to see how you can apply for a DRO.
Bankruptcy – you can only be made bankrupt by a court either on your own application or more usually on the application of one of your creditors. Once the Bankruptcy Order is made, your assets will vest in the Official Receiver [an official in The Insolvency Service] who may call a meeting of creditors to have a Licensed Insolvency Practitioner appointed your Trustee in Bankruptcy. It is the Trustee’s role to realise your assets, including your matrimonial home, for the benefit of your creditors. You are usually discharged from bankruptcy after 12 months, although the administration of the bankruptcy can continue for several years after that date. There are certain rules called “bankruptcy restrictions” that you must follow whilst you are an undischarged bankrupt. For example, you cannot act as a director of a limited company or obtain credit in excess of £500 without first advising the provider that you are a bankrupt. It is a criminal offence to break the restrictions.
Once you have made contact with us, we can guide you through the various procedures and provide you with our considered advice, helping you to choose the correct course of action to fit the circumstances.