Occasionally a company with a sound business idea can run into short term financial difficulties, at Blacks we are experienced in advising directors in such scenarios and the options available to them are as follows:
Company Voluntary Arrangement ("CVA")
A company may enter into a CVA, meaning a formal agreement to pay the creditors over an agreed term. It allows the company to continue to trade in the short term, provided the arrangement isn’t breached, and provides a platform for the company to build upon for the future.
A CVA will bind all creditors and help limit the possibility of a more formal insolvency event. Furthermore, it is a relatively easy process for a company to go through with relatively low costs in comparison with other formal insolvency events.
The CVA procedure gives a company breathing space from its creditors and time to formulate a carefully considered arrangement, which is attractive to creditors whilst remaining realistic for the company.
Administration is a procedure which allows an independent Insolvency Practitioner, the Administrator, to run, reorganise and sell the company (where possible). The company will benefit from a moratorium (a stay on proceedings) which allows the company to operate in a protected environment.
The aim of administration is as follows:
- rescuing the company as a going concern;
- achieving the best result for the creditors as a whole; or
- realising the company’s property and making distributions to creditors in the statutory order.
The need to enter into Administration can sometimes be extremely urgent. Therefore, you will need an experienced Team, like Blacks, to guide you through the procedure.
Administrative Receivership is more akin to a remedy for creditors, it allows for the realisation of company assets which is subject to security. Receiverships are now very rare and are only available to those with a qualifying charge created prior to 15 September 2003. If a floating charge is created on or after 15 September 2003 Administrative Receivership is no longer available as a remedy to enforce that security.
Instead, a qualifying floating charge holder (see our 'A-Z of Insolvency') can place the company into Administration. An Administrative Receiver can also be appointed if one of the exceptions in the Enterprise Act 2002 applies.
Liquidation is a formal procedure known more commonly as ‘winding-up’. Liquidation is a last resort, the company’s assets are realised for its creditors and the affairs of the company are brought to a close.
There is a common misconception that Liquidation is only available to creditors but this is not the case, there are three alternative routes into Liquidation as set out below:
- compulsory liquidation – commenced by a petitioning creditor and by Order of the Court only;
- creditors’ voluntary liquidation – commenced by an insolvent company where directors are unable/unwilling to give a statutory declaration of solvency; or
- members voluntary liquidation – commenced by a solvent company were the members of the company wish to cease trading.
There are a number of detailed procedural requirements to each of the above processes which we would always advise a client to seek professional advice upon.
The effect of the liquidation is that the directors’ powers cease and the Liquidator will take over the running of the company and the directors appointments may be terminated.
It is difficult to give an estimate time as to how long a liquidation may take but they can last a matter of months or in exceptional cases they can last for two to three years. However, the liquidation will conclude when:
- all assets are have been realised;
- dividends are paid to the creditors;
- final meeting of the creditors/members is held;
- the liquidator is released by meeting or by Court;
- the final accounts of the company are filed with Companies House; and
- the company is dissolved.