Introduction Following the introduction of new legislation, including the Enterprise Act 2002 and Insolvency Act 2000, the traditional options available for a financially distressed company have changed. If you therefore need to give your customers advice on their available options, the contents of the insolvency practitioner's corporate tool kit are as detailed below. It goes without saying that specialist advice should always be sought at an early stage. Administration     (i)    debenture holders with qualifying and enforceable floating charges     (ii)    the company or its directors and by order of the court upon the petition of:     (a)    any creditor     (b)    the company's liquidator     (c)    a supervisor of a company voluntary arrangement     (d)    the company or its directors The statutory purposes for the appointment of an administrator must correspond to a hierarchy of three objectives:     (a)    rescuing the company as a going concern (not simply its business). If this is impossible:     (b)    achieving a better result for the company's creditors then would be likely if the company were wound up Again, if this is not possible:     (c)    realising property in order to make a distribution to one or more secured or preferential creditors The process rather than administrative receivership will be increasingly used now that the Enterprise Bill has become law. Administrative Receivership The holder of a floating charge over a company's assets created prior to 15 September 2003 may appoint an Administrative Receiver should the company default under the terms of the debenture. Administrative Receivership is likely to be utilised to trade on a company to facilitate a going concern sale of its business and assets. Company Voluntary Arrangement A flexible process which is essentially a contract between a company and its creditors to "park" debt in such a manner that allows an eventual greater return to creditors, albeit often over time, than they could expect in a liquidation. A proposal is prepared within a statutory framework that needs to be approved by the company and its creditors as must any proposed modifications to the original proposal. From 1 January 2003, when the remaining provisions of the Insolvency Act 2000 came into force, directors of "small" companies have become entitled to obtain a short moratorium in order that they may propose a company voluntary arrangement ("CVA") The lack of moratorium provisions for CVA's under the Insolvency Act 1986 meant that many attempts to rescue companies failed because there was no protection from the commencement of legal action by a creditor the company's assets before any rescue plan could be put to all creditors. To take advantage of the moratorium procedure a company must satisfy specified criteria. Creditors' Voluntary Liquidation This is appropriate when a company is insolvent and has no prospect of continuing to trade profitably in the future. A company can be placed into liquidation, if appropriate, at extremely short notice with the agreement of 95% of its shareholders. Compulsory Liquidation This is invariably a creditor driven process, which follows a winding-up order made by the court, usually on the petition of a creditor. It is a creditor's action of last resort in attempting to collect an outstanding debt. Fixed Charge or Law of Property Act Receivership Unlike Administrative Receivership, this appointment is made by a mortgagor who does not hold a floating charge over the company's assets. The Receiver is appointed to realise a specific asset for the benefit of the charge holder. Other Processes Members' Voluntary Liquidation A solvent liquidation that facilitates the closure or restructure of a company's business. It provides for all creditors to be paid in full (together with interest) within twelve months and for the distribution of surplus assets to shareholders.This allows for certainty in the cessation of a company's affairs. Informal Arrangement It is often possible to negotiate an informal settlement with creditors (but beware - not, as a general rule, crown departments) which will restore a company to solvency. This clearly depends on individual circumstances and creditors are likely to need to be offered more by way of settlement than they could reasonably expect to receive following a formal insolvency. Turnaround, Restructure and Refinance Parts of a company's business may be unprofitable and insolvency may be avoided by shedding such parts. A comprehensive business review by an insolvency practitioner should highlight relevant issues and make detailed recommendations for the way forward. In this respect an insolvency practitioner will work with the company's management, financiers and other stakeholders if it is possible to formulate a solution to return the company to profitability. Conclusion It is impossible to be dogmatic as circumstances rarely repeat themselves. The key to informed decision making should your customer require the assistance of an insolvency practitioner are good financial information and time - if the bailiffs are already loading their lorry, the number of available options tend to be minimal. For obvious reasons people dislike taking advice from professionals unnecessarily (especially insolvency practitioners!) but where a company is experiencing cash flow pressures it may be the most sensible option to ensure long term survival. Steve Goderski 18 November 2003 Back