It is an unfortunate part of business that many companies will experience some degree of financial or operational distress at some point in its lifecycle. For some, this is a minor hiccup caused perhaps by a creditor paying late and thereby disrupting cash flow; for others, however, the problem can become more entrenched and lead the company to the brink of insolvency.
A company can be said to be insolvent when it is unable to pay its monthly outgoings in full, as and when they fall due, or when its liabilities outstrip its assets.
It is important to remember that an insolvent company is not necessarily a bad company, and in many cases, its fortunes can be reversed through careful and considered intervention by a business restructuring expert. If the business is viable as an ongoing entity, there are a range of corporate turnaround options which can be considered to effect a successful turnaround.
Our insolvency practitioners will work closely with businesses in financial distress to arrive at the root of the problem, whether this is poor cash flow, a changing marketplace, or operational inefficiencies. We will take the time to understand the current position the company is in, identify the challenges currently being faced, before ascertaining the most appropriate solution for the company’s specific circumstances. Working alongside its directors and shareholders, a robust yet flexible plan will be devised to help get the business back on a solid financial footing and in a position to look towards the future.
A business in financial distress can be rescued by pursuing a suitable company rescue or restructuring route to ease financial worry, satisfy creditors and stabilise cash flow to improve overall financial and operational health.
Our insolvency practitioners can advise on a range of corporate rescue options depending on the company’s current financial position and unique pressure points. These may include:
Company Administration – Placing a company into administration provides valuable time and breathing space for a long-term strategy to be put in place free from creditor pressure. Any outstanding or upcoming legal action by creditors will be halted, while an administrator – who must be a licensed insolvency practitioner – is appointed to take control of the company to negotiate the best outcome for company creditors. This may be achieved by saving viable elements of the business, or otherwise enhancing returns for outstanding creditors.
Administration is not a long-term solution in and of itself, and a company cannot remain in this position forever. At some point the company must exit administration; this can be done in several ways, either through a successful restructuring of the company’s finances and operations, a sale of the business, by entering into an alternative insolvency process such as a CVA, or eventual voluntary liquidation if the business is not deemed to be viable.
Company Voluntary Arrangement (CVA) – A CVA enables a company to negotiate a legally binding repayment plan with outstanding creditors, which will typically run for between 3-5 years. Depending on the debt levels involved and how much the company can afford to repay, some debt may be written off, with the remainder paid back through a series of affordable and sustainable monthly repayments. The company will continue to trade during this time, allowing it to use future profits to pay existing debts. CVAs must be overseen throughout their duration by a licensed insolvency practitioner who will act as nominee and supervisor during the process.
In order for a CVA to become legally binding on all parties, at least 75% (by value) of creditors must agree to its implementation. Therefore, the indebted company must be able to table a convincing proposal which offers a substantial enough monthly financial contribution to satisfy creditors, while also demonstrating the company’s long-term viability as a trading entity.
Fast Track CVA – A Fast Track Company Voluntary Arrangement is an accelerated process which may be suitable for certain companies which do not require as much intervention by a licensed insolvency practitioner as would be expected in a traditional CVA.
Administrative Receivership – Administrative receivers are appointed to sell company assets and realise funds to repay secured creditors. Although administration is more common, this route may be pursued where secured creditors can appoint an administrative receiver when holding security, i.e. by way of a debenture.
LPA Receivership – The Law of Property Act or Fixed Charge Receivership, also known as an LPA Receivership, is a tool used by lenders to recover debt on a defaulted property loan.
While rescuing the business will always be our primary objective, there are some cases, however, where a rescue process may not be in the company’s best interests, or may simply not be possible at all. If this is determined to be the case, you may need to consider options for closing the business and winding operations down in an orderly manner; this is something we are also able to assist with.
The company closure routes available will be influenced by whether the decision to bring the business to a close is voluntary, following mutual agreement between directors; or compulsory, due to an order from the courts.
If a limited company is insolvent – and therefore unable to meet its outgoings, or in a position where company liabilities outweigh assets – and there is no realistic possibility of the situation improving, placing the company into liquidation may be the best option for all concerned. The two ways into insolvent liquidation are as follows:
Voluntary Liquidation - If a company is insolvent and it is unlikely that it can return to a position of profitability, its directors may decide to voluntarily place the company into liquidation. This is done using a formal insolvency process known as a Creditors’ Voluntary Liquidation – or CVL. A CVL can only be entered into under the guidance of a licensed insolvency practitioner who will identify and sell company assets, liaise with outstanding creditors, and formally close the company with Companies House.
Compulsory Liquidation – If a business cannot afford to pay its liabilities, including HMRC, it may be forced into liquidation by a disgruntled creditor by order of the Courts; this is known as Compulsory Liquidation. When all other collection efforts have failed, creditors may petition the courts to have the indebted company forcibly wound up by serving a Winding Up Petition as a final resort. Unless the WUP can be successfully defended, an Official Receiver will be appointed and the company will be forced into liquidation.
A partnership can be placed into liquidation in the same way as a limited company via a Partnership Liquidation.
Our personal debt advisors can help individuals in debt find a solution to their debt problems by exploring debt management and settlement plans. The routes available will be dependent on personal circumstances, such as income, assets, and debt levels.
The personal insolvency solutions we can advise on include:
Our range of professional services to stakeholders of limited companies includes a partner-led approach to deliver timely advice to insolvent companies regardless of whether closure or rescue is the desired outcome.
Our expertise on company rescue, closure, and liquidation options are trusted by company directors, business owners, and professional intermediaries, including accountants and banks. We are the UK’s largest providers of corporate insolvency services delivered by a nationwide team of licensed insolvency practitioners from our network of over 100 offices.
Once a company begins experiencing cash flow problems, commonly the biggest worry for directors is a Winding Up Petition being presented by a creditor.More Info →
A Creditors’ Voluntary Liquidation – often abbreviated to CVL – is a formal liquidation process which brings about the end of an insolvent company.More Info →
A Members’ Voluntary Liquidation (MVL) represents an effective winding-up of a solvent company, allowing directors and stakeholders to unlock their capital in a tax-efficient mannerMore Info →
Administration is a powerful tool as long as the conditions are right. It is subject to clear statutory guidelines and we would have to ensure that it would be the best solution to take for all parties involved.More Info →
A Company Voluntary Arrangement, also known as a CVA, is a formal process enabling a compromise to be entered into between a company and its creditors.More Info →
When a company is unable to meet its liabilities and creditors feel they have exhausted all avenues to recover monies owed, they can petition for your company to be placed in compulsory liquidationMore Info →