Insolvency practitioners

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Liquidation

Voluntary arrangements

Administration

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Introduction

We appreciate that financial difficulties facing a business can be extremely worrying for business owners who inevitably have invested their time and money into building up the business. As part of our initial free review we will consider all aspects of the business including its funding, current pressure from creditors, its long terms prospects and the wishes and aspirations of its stakeholders.

Directors are often worried about whether they should continue to trade the business and what their duties to creditors and other stakeholders are. Obtaining professional advice at an early stage often goes a long way towards mitigating subsequent criticism that directors have traded to the detriment of creditors and should be liable to contribute to the assets of the insolvent business on a subsequent failure. In many instances further trading may be the correct and responsible course of action if this is undertaken within a properly thought through and documented framework.

If advice is sought before relationships with creditors have deteriorated completely then options such as a voluntary arrangement are more likely to succeed enabling the business to trade out of its difficulties. We are also happy to consider with directors options which avoid the need for formal insolvency proceedings such as refunding the business, merger with a competitor or simply making some changes to the way in which the business operates. We have access to a wide range of local professionals dealing with corporate finance and business sales and acquisitions who we can bring in to advise on available options should the need arise.

Where formal insolvency is unavoidable, we will look to preserve the business and the jobs of those involved with it in some shape or form if at all possible and in accordance with our professional responsibilities.

A brief overview of the various formal insolvency options is set out below with links to more detailed information should you wish to obtain further details before speaking to us. The links provided are to publicly available government resources and, as such, are not designed to promote or recommend any particular procedure.

Liquidation

Solvent Liquidation
A Members Voluntary Liquidation usually takes place as part of a solvent corporate restructure or where the owners of the company wish to dispose of the assets and business of the company in a tax efficient manner.

Insolvent Liquidation
This can be either be liquidation through the Courts, often at the instigation of an unpaid creditor, in which case it is referred to as Compulsory Liquidation or at the instigation of the members or directors of a company but overseen by the company’s creditors (a Creditors Voluntary Liquidation).

A Compulsory liquidation usually offers very little scope to deal with the company’s business and assets in a thought through way due to:

    1. The freezing of the company’s accounts upon the advertisement of the presentation of a petition;
    1. The statutory prohibition on disposing of the assets and business of the company between presentation of the petition by a creditor and the hearing of the petition (typically a period of six weeks or more);
    1. The automatic appointment of the Official Receiver to deal with the company’s affairs in the event that a winding up order is made.

A CVL, as a voluntary procedure, is the outcome of the company’s stakeholders considering the company’s financial position with the benefit of proper advice from insolvency practitioners and other advisers and deals with the company’s affairs outside of any formal Court process or involvement with the Official Receiver’s office.

Where a CVL looks likely, SWBR will explain the procedure and assist the directors and members with all of the necessary steps to place the company into liquidation. We will also undertake, prior to our appointment, a preliminary review of any issues which might affect the directors personally (such as repayment of loan accounts) and flag up any areas of concerns which directors may wish to obtain separate advice upon.

Voluntary arrangements

The aim of a voluntary arrangement is often to enable a business to seek to continue to trade whilst paying its creditors in an orderly fashion.

They are, however, extremely flexible procedures and can be utilised in any scenario where the outcome of a voluntary arrangement can be demonstrated to offer a better outcome to creditors than liquidation or bankruptcy. This might include allowing time to achieve a sale of all or part of the business (as with several recent high profile cases) thereby avoiding a liquidation fire sale.

The most common arrangement however involves generating contributions from ongoing trading receipts and paying these into the arrangement to meet the claims of pre arrangement creditors. Arrangements can provide for payment of creditors debts in full within a set time period but more commonly propose repayment of a proportion of the debt in full and final settlement.

Formal arrangements are useful in that they set out a defined timetable for creditors to respond to within and can bind in dissenting creditors providing they do not exceed 25% of overall creditors voting in respect of the proposed arrangement. We have pursued informal arrangements in the past where individual separate agreements are sought with each creditor but have found it difficult to obtain a uniform consensus. HMRC are also resistant to any informal arrangement which does not provide for payment in full within a generally short time period.

Administration

The two main statutory objectives of administration are to:

    1. Rescue the company as a going concern
    1. Achieve a better result for creditors than would be achieved in a liquidation

The second purpose can often be achieved through the inherent flexibility of administration and the enhanced powers of an administrator when compared to a liquidator. The business can be traded in administration whilst a buyer is sought for the business and administration creates a moratorium which prevents creditors exercising enforcement powers or taking legal proceedings during the administration period.

Administration is also a quick process which can sometimes assist with maintain business continuity and ensuring going concern values can be achieved for the business and assets whilst providing a measure of protection to a purchaser.

Rescuing the company as a going concern (the primary objective) might be achieved where the company exits from administration into an arrangement with its creditors.

The procedure generally takes place without a Court hearing and can be instigated by either the directors or the members although secured creditors need to be notified if they hold enforceable charges over the company’s assets.

Links

Liquidation
Companies House – click here
Insolvency Direct – What is compulsory liquidation? – click here

Corporate insolvency generally
Companies House – click here

Downloads

Is a Voluntary Arrangement right for me?
The Association of Business Recovery Professionals. [PDF download – 250kb]

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