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UK insolvency practitioners’ processes under the Insolvency Act 1986
Administration
This puts a temporary ring fence round your company to give you and us the necessary time to agree how to fix your financial problems. It is a statutory moratorium that stops any creditor taking action to seize goods or take any legal recovery action against the company. To justify the use of this technique, the company needs to be in jeopardy – it is not a remedy in itself. If your cash problems are temporary, the ring fence can then simply be lifted, but usually the exit route is a Company Voluntary Arrangement or Creditors Voluntary Liquidation. It can be used to facilitate an orderly realisation of assets if the business is not to continue.
Company Voluntary Arrangement (CVA)
This is a deal between an insolvent company and its creditors which allows the company to repay some or all of its debts from future profits or asset sales usually over a three- to five-year period. The scheme can provide for the writing off of the balance of the debt which cannot reasonably be paid. As specialists in turnaround management, we can create an innovative deal that will save your company and create a legally binding payment plan based on realistic and achievable projections.
Case study of a Company Voluntary Arrangement
Creditors Voluntary Liquidation
This brings the company’s life to an end, but often all or part of the business can be transferred — at a proper market value — to a new company so that trading may continue without interruption. This may be an alternative to a CVA, depending upon the circumstances. It is also the usual route for the economic realisation and distribution of the assets of a business where trading has to cease. In cases where a business is no longer viable, directors should always talk to an insolvency practitioner as early as possible in order to avoid ‘wrongful trading’ under the Insolvency Act 1986 and running the risk of being made personally liable for the company’s debts.
Informal Schemes
For smaller businesses and those where there is only a temporary problem, an informal arrangement with creditors may be all that is needed. This keeps costs to the minimum and can provide a much better return to creditors by avoiding much of the bureaucracy and negative publicity associated with a formal scheme. Atherton Bailey brings to negotiations with your creditors the skills and expertise necessary to make an informal scheme a more realistic option.
Receivership
Fast fading away and being replaced almost entirely by the use of administration, receivers can still be appointed by secured lenders, such as banks, to recover the debt due to them. Receivers usually work with management to sell the business as a going concern and maximise the funds realised. Banks can now appoint administrators instead of receivers, but the administrators’ duties are to all creditors and not simply the bank.
