Company Insolvency

Company Insolvency

Where formal insolvency procedures cannot be avoided, we aim to consider the circumstances and needs of all concerned, and ensure a cost-effective and efficient solution for everyone. For example, selling a business as a going concern (sometimes reconstructed), or making an arrangement with creditors, benefits creditors as well as proprietors. But it is important to remember that keeping the full range of options open depends on seeking advice early.

We offer the full range of insolvency/recovery appointments under the Insolvency Act 1986, as well as acting on an informal basis when appropriate. Fees are always agreed in advance, so there won't be any nasty surprises down the line.

Company Voluntary Arrangements (CVAs)

A voluntary arrangement for a company is a procedure whereby a company reaches an agreement with its creditors as a whole. There is limited involvement by the Court and the scheme is under the control of a supervisor.

A company voluntary arrangement is used to rescue companies which are insolvent yet have an underlying business that would be profitable in the future without having old debts holding it back.

A proposal is drawn up by the directors or if the company is in liquidation or administration, the liquidator or administrator. The proposal must name an Insolvency Practitioner who will act as nominee and will call meetings of the members and creditors.

The nominee also reports to the court on whether in his opinion a meeting of members and creditors should be called to enable them to consider the proposal, and whether the proposal has a reasonable prospect of being approved and implemented.

If the proposal is accepted, it is binding on all your creditors, including HM Revenue & Customs. In fact, acceptance is generally reached by a majority, in value, of 75% of those creditors who actually vote.

If needed, in advance of distributing a proposal, a court application can be made for a moratorium whereby it has a 28 day period of respite from its creditors during which proposals have to be made and put to creditors.

The sort of proposal put forward will generally include an agreement to pay so much in the £ to creditors over a specified period, usually up to 5 years, whilst paying all new debt as they fall due.
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Administration Orders

Administration is managed by an administrator, who is an authorised insolvency practitioner appointed to manage the affairs, business and property of a company. He/she will be an officer of the court and must perform his/her functions with the objective of rescuing the company wherever possible.

The Enterprise Act 2002 revised the administration procedure. The revised administration procedure puts rescue at the heart of the administration - where companies can be saved, they should be saved. The first objective of the administrator must be to consider rescuing the company. This means rescuing the company as a going concern with all or most of its businesses intact - it does not mean ending up with the legal shell of the company. This new emphasis on company rescue in administration will help to ensure that viable companies are preserved and jobs are safeguarded.

Administration effectively protects the company from any action by creditors to recover money for a limited period, e.g. a creditor cannot petition for the winding up of a company whilst it is in administration.

Purpose of Administration

There are three objectives -
  • Company rescue (as a going concern) being primary.
  • If that is not possible (or if the second objective would clearly be better for the creditors as a whole), the administrator can achieve a better result for the creditors than would be obtained through an immediate winding-up of the company, possibly by trading on for a while and selling the business/businesses as a going concern.
  • Only if neither of these objectives is possible, can he realise property (sell assets to somebody) to make a distribution to secured and/or preferential creditors.
In addition to the court order entry into administration, the Enterprise Act 2002 introduced an ‘out of court’ appointment route for holders of qualifying floating charges and companies/directors that is quick and does not need a court application or hearing. The administrator is still an officer of the court and the relevant documents are filed with the court, but the appointment is effective from the date and time that a notice of appointment is filed with the appropriate court.

Companies and directors can only appoint an administrator through the relevant "without court order" route if the company has not had the benefit of a moratorium (or interim moratorium) within the previous 12 months. This prevents administration being used as a quick and easy way of holding off creditors whenever things get difficult.

Time limits

The Enterprise Act 2002 introduced an overall time limit of one year for an administration, although this can be extended by the consent of the creditors and/or by the court. The administrator is also required to do everything as soon as reasonably practicable and the time-limits for getting his proposals out to creditors, and holding the initial creditors' meeting are eight and 10 weeks respectively, although these can also be extended with the creditors' consent and/or by the court.

Endings

The Enterprise Act introduced specific, finite endings, which enable the administrator to move the company from administration straight into a creditors' voluntary liquidation (where there are assets to be distributed to unsecured creditors) or to dissolve the company (where it has no property left to distribute to creditors), on the registration of the relevant notice by Companies House.
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Liquidations

Applies to companies or partnerships.

In general, liquidation has two main purposes:
  • The realisation and distribution of the assets, not necessarily involving the closing down of the business;
  • To investigate the directors' conduct and to report to the DTI.
There are 2 basic types of liquidation - compulsory and creditors'. These refer to the alternative way in which a liquidation commences, either by a Court Order (requested by a creditor such as HM Revenue & Customs - known as a compulsory liquidation), or by a resolution of the Company’s directors and shareholders, known as a voluntary liquidation.

Compulsory Liquidation

The placing of a company into liquidation as a result of an application to the court, usually by a creditor. The Official Receiver is always the initial liquidator and conducts the investigation of the directors' conduct.

Voluntary liquidation

A method of liquidation not involving the courts or the Official Receiver. There are 2 types of voluntary liquidation:
  • Members' voluntary liquidation (MVL) for solvent companies – where all creditors will be paid in full. No investigation of the directors is usually required as all parties have been paid in full. This is often used as a more tax efficient distribution of funds to shareholders
  • Creditors' voluntary liquidation (CVL) for insolvent companies – It is commenced by resolution of the shareholders, but is under the effective control of creditors, who can choose the liquidator.

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