If your business is insolvent or experiencing financial difficulties, this doesn’t necessarily mean the end. Financial difficulties can be part and parcel of running a business, so if you are concerned about your financial position, it’s important to seek advice from a licensed insolvency practitioner.
Liquidation or the winding up of your company is not always the only answer. A licensed insolvency practitioner can help to understand the range of solutions that may be available, helping you to ensure the best possible outcome for your business, whilst also making sure that you are not breaching your director’s duties whilst experiencing financial difficulties.
Here is an overview of the range of formal insolvency and business recovery options that may be available to businesses facing financial issues.
Liquidation
- Voluntary liquidation – this is where a company is placed into liquidation by the Court after the company’s shareholders voluntarily petition for this action.
If the company directors are able to swear to the ability of the company to pay its debts in full within 12 months of the start of the winding up process, then this process is known as a members’ voluntary liquidation (MVL). An MVL is applicable for companies that are viewed as legally solvent.
If the directors are not willing to swear to the company’s solvency, then this liquidation process is called a creditor’s voluntary liquidation (CVL). A CVL is applicable for companies that are viewed as legally insolvent.
In the case of any voluntary liquidation, all business must cease and a liquidator must be appointed to distribute the company’s assets to creditors as a priority.
- Compulsory liquidation – this is where a company is placed into liquidation by the Court following a petition by parties that can include creditors of the company, or company directors.
Compulsory liquidation will occur only when the Court is confident that the company is not able to pay its debts, so the best cause of action is for it to be liquidated, with assets released to the benefit of creditors.
Rescue from Financial Difficulties
- Company Voluntary Arrangement – A CVA is a formal agreement between a company experiencing financial difficulties, and their creditors. This agreement could involve a restructuring of debt repayments, provided that this is agreed to by all major creditors. Should a Company Voluntary Arrangement be agreed upon, creditors are bound to the terms stated.
- Administration – this is a procedure whereby an administrator is appointed in order to either rescue the company, achieve a better result for creditors than would have been the case through liquidation, or to sell the business’s assets as a going concern to allow for distribution of funds to company creditors.
Administration can provide time for a company to be rescued or restructured, with administrators taking over the operation of the business from the directors, in order to achieve one of the goals stated above.
Help with Business Insolvency
If you are experiencing business insolvency or financial difficulties, it’s important to contact a licensed insolvency practitioner to find the best solution for your company going forward.
BEACON LIP are licensed insolvency practitioners – arrange a consultation today.