Types of formal insolvency procedures

Bankruptcy

Bankruptcy is a formal method of dealing with debts if other options have failed or are inappropriate.  The consequences of bankruptcy are severe and no one should apply for their own bankruptcy (debtor application) without seeking advice.

If a debtor is declared bankrupt it means that they have to hand over their assets, including the family home, to their Trustee, an Insolvency Practitioner.

If your business is owed money by a non incorporated business, or individual, then to recover the debt, if all other methods fail, you can apply to the Court to make the debtor Bankrupt.

It is the duty of a Trustee to sell the debtors assets and pay a dividend to creditors.

Liquidation

It is important to recognise that not all Liquidations are insolvent Liquidations.

A Liquidation may be classified as a Members Voluntary Liquidation, if so, this type of Liquidation is solvent and liquidating a company can be a very tax efficient way of dissolving a company.

If your business is owed money by a limited company, then you can pursue through the courts and petition for the Liquidation of that company.
If a Liquidation is Insolvent then there are two types, either Creditors Voluntary Liquidation (CVL) or Compulsory (Court) Liquidation.

There are many differences between these procedures however they are both designed to achieve the same end result, to collect and distribute the assets of the company. When Liquidation comes to an end the company may be dissolved and will no longer exist as a commercial entity.

Administration

Company administration is directed at rescuing companies as going concerns. Administration can, since the Enterprise Act 2002, be commenced without a court hearing, although a number of formalities must be adhered to and the option of a court hearing still remains. An Administrator can be appointed by the company or its directors, the holder of a floating charge or by an Administration Order of the court.

Receivership

A receiver is appointed by a lender of a charge over some or all of the company’s assets. The main responsibilities of a receiver are to ensure the appointing lender is paid off. The law recognises that the recovery control over the company can have considerable effect on the company and its other creditors.

Company Voluntary Arrangement (CVA)

A Company Voluntary Arrangement is an insolvency procedure that allows a financially troubled company to reach a binding agreement with its creditors about payment of all, or part of, its debt over an agreed period of time.

Armstrong Watson have licensed and experienced Insolvency Practitioners based in a number of offices. Please do not hesitate to contact me if you wish to discuss any matter further.

Alison Anderson, Insolvency Director
 

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