Occasionally financial problems become so severe that a formal insolvency process is needed to give a business breathing space or to enable an orderly wind-down to be carried out.
Insolvency is a complex area of law and our advisors will talk you through the various procedures in detail to help you decide on the appropriate option for your circumstances.
Simplified explanations of the main insolvency processes are set out below.
An Administration is a court-based procedure which prevents a business’s creditors from taking enforcement action. It is typically used to provide breathing space where a restructuring plan is being developed or whilst a sale of part or all of the business is being pursued.
- Voluntary Arrangements
A Voluntary Arrangement is a formal agreement between a business and its creditors; it usually involves a business committing to contribute a portion of future profits to repay historical debts in return for creditors agreeing to write off an element of the money they are owed. If a voluntary arrangement is approved and the business honours its obligations under the arrangement creditors cannot take enforcement action to recover their historic debts.
- Creditors Voluntary Liquidation (‘CVL’)
A CVL is used where management has decided that a business is no longer viable and cannot continue to trade. The CVL procedure provides for all of the company’s assets to be realised and the proceeds to be distributed to creditors in proportion to the amount they are owed.
- Compulsory Liquidation
A Compulsory Liquidation is similar to a CVL, although unlike a CVL it is a procedure commenced by a company’s creditors to recover money they are owed, rather than its directors.