UK insolvency legislation provides various formal procedures available to companies.

Company Voluntary Arrangement (‘CVA’)

When your company is struggling, a CVA could mean a lifeline for your business. It would mean the directors entering into a legally binding compromise to help the company keep trading.

With a CVA, the company makes a formal agreement with its creditors. More than 75% of those voting have to vote in favour.  Once this is agreed, the creditors are legally bound to accept the terms of the Arrangement – even the non-voters and those that rejected the agreement.

Administration

Administration is a legal process that creates a legal stay (or moratorium) against creditor action.  It also gives the Company breathing space to develop further proposals that can be put to creditors. Administration is a very useful tool and can lead, in some instances, to the Company being rescued as a going concern. The other objectives may be to achieve a better return to creditors generally or to secured creditor(s).

Under the Enterprise Act 2002, Administration has been streamlined and in most instances costly Court hearings can now be avoided, making this a much more accessible rescue tool.

Liquidation

Sometimes, business recovery or rescue is not a viable solution.  The company’s cashflow might be unmanageable or it could be too late for rescue strategies. 

When Springfields recommends liquidation, we fully explain the range of possible options.  Then we will outline which we think is right for everyone concerned and crucially, explain why.

If your company is insolvent, it could enter into Creditors’ Voluntary Liquidation or Compulsory Liquidation.

Whatever the case, once your company has been placed into liquidation, it would be highly unlikely to continue trading.

Creditors’ Voluntary Liquidation

You should consider a Creditors’ Voluntary Liquidation (‘CVL’) only if the company is insolvent.  This means that the company’s liabilities exceed its assets, or the company can no longer pay its debts as they fall due or there is no longer any prospect of the company continuing to trade.

The company directors agree to place the company into liquidation, its shareholders place the company into liquidation and the creditors elect the Liquidator.

Directors are usually unwilling to put the company into liquidation as they always think that better times are around the corner.  However, they should always be aware of the threat of potential actions against them for fraudulent and wrongful trading.  Directors can be held personally liable for all liabilities incurred if they continue trading the company after they know or should have known that the company was insolvent.

The Liquidator’s duty is to realise the assets of the Company and distribute them to creditors, and to investigate past transactions and the conduct of the directors.

Compulsory Liquidation

A Compulsory Liquidation is a Court led method of winding up a company.  The Liquidator’s sole role is to realise and distribute the company’s assets and then conclude its affairs.  The most common reason for a Winding-Up Order is that the company can’t pay its debt when due.

A Court might grant a Winding-Up Order if the company’s total liabilities exceed total assets, a statutory demand greater than £750 remains unpaid for 21 days, or the company is subject to an unsatisfied judgement execution.

The winding-up application must be by petition, which can be presented either by the company itself, its directors, its shareholder or, more commonly, creditors as a way of collecting debts owed.

The Official Receiver (civil servant) has considerable powers of investigation into the company’s failure.  These can include assessing directors’ actions or those of a previous Receiver or Administrator.