There are several different insolvency processes for companies. Which route you take depends on whether there is a potential to rescue the business or not:
Company Voluntary Arrangement (“CVA”)
A CVA allows the directors to retain control of the business whilst seeking a compromise of the outstanding debts. It is very flexible and is a useful tool for restructuring your business, including the ability to exit leases and reduce headcount, however there does need to be an underlying viable business (after the historic debt has been dealt with). An Insolvency Practitioner (“IP”) acts as a Nominee whilst the proposals for the CVA are drafted and meetings of creditors and members are convened; once the proposals have been approved, the IP becomes the Supervisor. A CVA proposal often involves monthly contributions which are then distributed to creditors by the Supervisor.
Where a rescue of the business is possible, sometimes by a pre-packaged sale (“pre-pack”), Administration can be an appropriate insolvency process. The Administrators can be appointed by the directors, the company or, in some cases, the lender (who has a qualifying floating charge). The Administrators are officers of the Court and must act in the interests of all creditors to achieve the statutory objective of the Administration (namely rescuing the business as a going concern, to achieve a better result than a liquidation or to facilitate a distribution to secured and/or preferential creditors). In most cases, once the objective of the Administration has been achieved, the company in question will be dissolved (i.e., it is not handed back to the directors). An Administration triggers a moratorium, which prevents creditors from continuing with enforcement action and/or legal proceedings, therefore protecting the assets for the interest of all creditors.
Creditors’ Voluntary Liquidation (“CVL”)
A liquidation is most appropriate where there is no likelihood of rescuing the business. The process is initiated by the directors, with members being required to agree to the company being placed into liquidation, with creditors then agreeing to the director’s choice of liquidator or appointing their own instead. The Liquidator’s role is to realise assets on behalf of the creditors, paying a distribution where possible.
A company enters compulsory liquidation following a petition being presented at Court for the company to be wound up. There are different reasons why a winding up petition might be presented, but it is most often as a result of an outstanding statutory demand, which allows the creditor to issue the petition. Once the Court makes the winding up order, the directors’ powers cease, all contracts are terminated and, in the interim at least, the Official Receiver is appointed to oversee the administration of the estate. An IP can be appointed as a Liquidator, but their role is more to facilitate the realisation of assets as the OR continues to have a role following the appointment. The directors have no control over this process, nor do they have any say in the choice of Liquidator.
Whilst the above is designed to provide you with a brief guide, you should seek advice from an appropriately qualified and experienced advisor. Our Restructuring and Insolvency team will be happy to advise you.