Here we deal with those issues affecting only directors of companies. Most of you will be familiar with the term bankruptcy as it is used so much by the media regardless of whether they are referring to an individual or a company. Companies cannot go bankrupt, only individuals can.

There are various types of insolvency called liquidation and we give a full explanation below of the different types.

What is liquidation?

Debt problems can arise at any time in the life of a company and things start to go wrong when directors bury their heads in the sand and ignore writs and summonses. Instead of ignoring their cash flow difficulties, it would be better for directors to consult and get expert advice early on. Our motto of Timely Intervention is simply that. The earlier we get to know about the problem, the easier it is to find a solution and to get the company back on its feet. Sometimes the only solution is the orderly wind down of the company’s affairs. Your exit route becomes very important at this point and you need to ensure that, as a director of a company, you seek expert advice as soon as you are aware that the company cannot pay its debts as and when the fall due. Otherwise you run the risk of Wrongful Trading under the Insolvency Act 1986.

Liquidation means the closure of a company and the end of a company’s life. The assets are disposed of and the employees are laid off through redundancy. Creditors must be informed and debts must be collected.

There are three types of liquidation: Creditors Voluntary Liquidation (CVL), Compulsory Liquidation (CL) and Members Voluntary Liquidation (MVL). The differences between them are as follows:

• CVL - the directors usually make the approach to a practitioner in a CVL and the shareholders then appoint him to act. This is followed by a creditors meeting where the creditors either appoint the shareholders’ nominated liquidator or vote to appoint an alternative one.
  
  
• CL – a creditor or the directors, petition to wind up the company and an officer of the court called the Official Receiver, is appointed.
  
  
• MVL – the directors declare the company solvent and therefore, all creditors will be paid in full.

All of this may appear complex but in the hands of a professional it is an everyday occurrence and our methods at CBA ensure that all matters are dealt with in an efficient and timely manner to enable all parities concerned to move on and start afresh. For more information on the actual process please go to our brochure series and download our PDF - Liquidation

The next process looks at the ways in which a company can still survive and pay its debts with the agreement and backing of its creditors over an extended period of time. This process is called a Company Voluntary Arrangement.

What is a Company Voluntary Arrangement?

In essence, it is a method by which a company can make an offer to its creditors to pay back its debts to creditors over an agreed period of time. The company may not be able to afford to pay back all of what it owes and it will therefore make an offer to pay a quantified amount, e.g. 50p in £ over a period of two years. The amount and timescale will depend upon several factors and these factors will be discussed in details with directors when they first approach us for expert advice.

For more information on the actual process please go to our brochure series and download our PDF – Company Voluntary Arrangements

Another common process for dealing with companies in trouble is Administration.

What is Administration?

When a company is facing major financial difficulties the directors can now file documents in court requesting that the company be placed into administration. In effect, a protective cloak is placed around the company during the period in which the order is in force. Whilst this procedure is popular in the UK, it is likely to become more so as it is now less expensive to achieve due to recent changes in insolvency legislation brought about by The Enterprise Act 2002.

The process of administration can best be described as an exercise suited to many companies, or situations such as a complex trading situation where the goods manufactured need to be protected whilst a survival plan or an orderly wind down of the company’s affairs is being achieved. The purpose is to preserve the company, allow it to re-organise and/or ensure the best realisation of its assets to give a dividend to creditors.

For more information on the actual process please go to our brochure series and download our PDF – Administration

Another procedure common here in the UK is Administrative Receivership.

What is Administrative Receivership?

This is a process whereby a person or corporate body (bank, building society etc) holding a charge over the company’s assets (usually fixed assets such as property, land and buildings) can appoint a licensed insolvency practitioner to deal on their behalf. The most common forms of appointment are those made by the UK’s banks. The holder of the charge, i.e. the lender, is often referred to as the debenture holder.

It is normal in this situation that the duly appointed administrative receiver (not to be confused with the administrator appointed under an administration order) will look to continuing to trade on the company for a period of time in the hope that the business can be sold as a going concern. By doing this, it gives the business a chance to survive and grow under new management. If the business is sold, the administrative receiver will seek to distribute the proceeds to the secured creditor (debenture holder). If a surplus of funds exists after settlement of the secured creditor, it will be necessary for a liquidator to be appointed to distribute funds to the unsecured creditors.

So, in summary, there are at least four main types of corporate insolvency which have been outlined here. In order to make a sound judgment on which exit route is the best for your company, call us at CBA and we will be pleased to discuss all the available options with you. Our advice is free on any initial meeting between us.