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Defining Corporate (and Company) Insolvency – the Common Options Available

A company is deemed to be insolvent when it cannot pay its debts as they fall due, or the value of its liabilities is greater than its assets. If you think that your company is insolvent, you must cease trading immediately and seek the advice of a licensed Insolvency Practitioner.

Taking too long to cease trading leaves directors open to accusations of wrongful trading, and subsequent disqualification as directors. Begbies Traynor offers a same day initial consultation free of charge, and is available for appointment as Insolvency Practitioner.

Common insolvency options for companies

Company Voluntary Arrangement (CVA)

A CVA can allow the directors of a company to retain control of operations while continuing to trade. Extended payment terms will be negotiated with creditors on their behalf by a licensed Insolvency Practitioner.

A single consolidated payment is made over a longer period of time, freeing up valuable working capital for the company. Interest and charges are frozen, and creditors are unable to take legal action while the terms of the CVA are being met.

These new circumstances may offer the opportunity to get the company back on its feet, and suppliers could continue to trade with you, albeit on a cash-on-delivery basis or using pro forma invoices.

HMRC Time to Pay arrangement

If you have arrears on VAT, corporation tax or PAYE, you or your Insolvency Practitioner may be able to agree a Time to Pay arrangement with HMRC. This is an instalment plan that grants you extra time to pay, and commonly lasts for three to six months.

Although many directors enter into negotiations with HMRC, it may be beneficial to use the influence of a licensed IP to help you in this regard. Begbies Traynor can contact HMRC on your behalf to negotiate an extended payment period.

Under a TTP, your liability is not reduced – you pay the full amount over a longer period of time, but this often helps to relieve some of the financial pressure your company is experiencing.

Pre-pack administration

Pre pack administration involves selling the underlying business assets as a going concern, and differs from Company Administration as the sale is negotiated prior to appointment of an IP.

This benefits several parties – the company’s financial problems are unlikely to become known to the public, meaning that trade should not suffer, jobs are often saved, and creditors generally receive a higher dividend than with liquidation.

Indeed, it is incumbent on the IP to prove that a pre-pack administration is the best possible option, and is in the best interests of creditors.

Creditors’ Voluntary Liquidation (CVL)

The CVL process may be suitable if there is no future for the company and you want to avoid potential accusations of wrongful trading or misconduct. The company is placed voluntarily into liquidation, and on appointment of a licensed Insolvency Practitioner, business assets are sold to realise as much as possible for the creditors prior to closing down.

Begbies Traynor can offer advice on whether your company is insolvent, and professional guidance on any of the insolvency options mentioned. We offer a free same-day consultation from offices spanning numerous UK locations.

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Advice You Can Trust

Insolvency Practitioners Association Institute of Chartered Accountants in England and Wales R3: Association of Business Recovery Professionals ICAEW Business Advice Service Turnaround Management Association ACCA (the Association of Chartered Certified Accountants) ICAS | The Institute of Chartered Accountants of Scotland
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