Marshall Peters strives to ensure rescue and survival for all client cases of financial difficulty, but it is inevitable that this is not always going to be possible. There can often be severe underlying problems which may prevent a long-term recovery of the business, and in such cases formal proceedings to place the company into administration or receivership may be required. Even if this happens, there are opportunities that the company may have a future. Other measures include Company Voluntary Arrangements or as a last resort, liquidation. Even then, there may be a solution which can help you regain control of your business at a later date.
Benefit – legal protection from creditors whilst business issues are rectified
The key purpose of an Administration is to ring-fence a company’s debts and protect the business from creditors, giving it time to complete orders, raise funds or sell assets. It can be very quick to implement an administration, which means that the company can get instant protection from aggressive creditors who are threatening bailiffs or court action, or threatening to take back stock or supplies, thus giving the company time and space to implement a restructuring plan.
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.
Company Voluntary Arrangement (CVA)
Benefit – debts are set aside so that the Company can focus on trading going forward
A Company Voluntary Arrangement (“CVA”) is an agreement between a company and its creditors, to repay the creditors a portion of what they are owed, over time, with the remaining debt to be written off. The amount paid back can be from trading profits, or the sale of assets further down the line.
A CVA is utilised to preserve the business, rather than an Administration or a Liquidation where the business is closed down and possible a new business is started (“phoenix”).
CVAs are ideal for ring-fencing debts whilst a company gets back on its feet. Directors remain in control of the business rather than an Insolvency Practitioner taking over, personal guarantees aren’t called in as a rule, and business preserve contracts with customers that might otherwise be terminated in an Administration or Liquidation.
A CVA may be proposed by the directors of the company. When the company is either in liquidation or administration, the liquidator or administrator can propose a CVA.
Creditors Voluntary Liquidation (CVL)
Benefit – controlled wind down of the business, relieving directors of financial stress
A Creditors Voluntary Liquidation (CVL), also known as voluntary winding up is the most common process used to close an insolvent company, with the directors voluntarily liquidating the company and then the assets or business sold on.
After the assets are sold and the proceeds distributed, the company is struck off the register, or dissolved. It literally ceases to exist. Most companies which go into insolvent liquidation have already stopped trading and it is therefore very unusual for a liquidator to be able to carry on the business.
Once the liquidator has been appointed he or she runs the liquidation, calls all meetings, and realises all assets, if any, for the benefit of the company’s creditors.