Corporate Insolvency
Our first priority is to help you to establish whether the business can be saved. If we believe this is a viable option, we will do our utmost to help survival. This may involve one or more of a number of formal or informal actions, including: management action, administration, Company Voluntary Arrangement, sale or merger.
The approach adopted is entirely dependent upon the company's situation. Without exploring this in detail with an experienced insolvency practitioner, no one can say which approach will be appropriate to your own circumstances.
We have provided some basic information on the main formal procedures which can apply to companies.
Administration
Administration creates breathing space for a company. It preserves the company's business and provides protection from the creditors while an administrator puts his or her proposals in place. The aim of an administration is to rescue the company as a going concern or achieve a better result for the creditors than would be likely if the company were wound up (without first being in administration).
A company may enter administration either with or without a court order, upon the application of, for example, the company, its directors, a creditor or a floating charge holder. An administrator's appointment is advertised in the London Gazette. The Administrator is then required to set out proposals for achieving the administration and manages the company's affairs to this end.
Administration ceases after 12 months, although this can be extended. There are two main methods to end an administration. If the administrator believes there are sufficient funds to pay the secured creditors in full plus a dividend to unsecured creditors, the Administrator can apply for the company to be placed into creditors' voluntary liquidation. Alternatively the company is dissolved.
Company Voluntary Arrangement
This process is similar to that of an Individual Voluntary Arrangement but for companies. The company makes an agreement with its creditors by proposing a composition in satisfaction of its debts or a scheme of arrangement of affairs.
As with an Individual Voluntary Arrangement a proposal is prepared by the directors, often with the assistance of a nominee, who then prepares a report on the proposals and submits the documents to the local County Court. During this time a moratorium may be obtained. If accepted by a substantial majority of creditors (75%) at a meeting of the creditors, it becomes a legally binding agreement to all known and unknown creditors. Once approved, the proposals are put in place and the supervisor oversees the entire process.
Liquidation
If it is not possible to save a company, we will assist you with the liquidation.
There are two tests to determine whether a company is insolvent:
- the cash flow test - which states that a company is insolvent when it is unable to pay its debts as they fall due
- the balance sheet test - where liabilities (including redundancy pay and other employee entitlements) exceed assets.
There are three types of liquidation: compulsory, creditors' voluntary and members' voluntary.
Compulsory
A compulsory liquidation is where a company is ordered by the court to be wound up.
A statutory demand is served on the registered office of the company by, for example, one or more creditors who are owed a sum greater than £750. Following receipt of this demand the company has three weeks in which to make payment, failing which a petition to wind up the company is presented to the appropriate county court. Once sealed by the court the petition is served on the registered office and at least one director. Once advertised in the London Gazette the petition is heard in court and a winding up order may be granted. The Official Receiver is appointed liquidator and if there are assets he or she may appoint a liquidator to distribute the assets amongst the creditors.
Although this type of liquidation is controlled by the court, if you seek help immediately we may be able to liaise with the petitioning creditor on your behalf in order to place the company into voluntary liquidation prior to the hearing of the petition. This would mean you maintain a degree of control over the company; the process is also slightly kinder.
Creditors' Voluntary
This is the most common form of corporate insolvency. The directors of a company can make the decision to put it into liquidation if it is considered insolvent. A meeting of shareholders is called to pass an extraordinary resolution that the company be placed into voluntary liquidation. In the meantime the directors are required to prepare a sworn Estimated Statement of Affairs, which summarises the company's financial position.
Following his or her appointment the liquidator realises all of the company's assets and makes distributions to the various classes of creditors.
Members' Voluntary
A company placed into members' voluntary liquidation is not insolvent. The liquidation is merely a method for the shareholders to dissolve the company and distribute the assets. All shareholders must give their approval for the dissolution.
The primary task of the directors is to prepare a sworn declaration of solvency. This states the company has to pay its debts in full plus statutory interest within 12 months. A meeting of members is held to place the company into liquidation and appoint a liquidator to realise the assets and distribute them to the creditors and shareholders. If the company is unable to pay all its creditors a further meeting is called to enable the creditors to appoint a liquidator.
Other services
We are also able to offer advice and help you with the following practical matters:
- retention of title clauses / claims;
- act on behalf of and advise creditors who are owed money by an insolvent company (this includes representing the creditor on a liquidation committee, completing the necessary forms to submit a claim and attending creditors' meetings);
- make recommendations on cash flow management; and
- directors duties, responsibilities and personal liabilities.