The UK insolvency law is built around Insolvency Act 1986, Enterprise Act 2002, The Company Directors Disqualification Act 1986, and many precedents arising from case law. It is vitally important to understand that, if your business is insolvent, this results in a shift in your duty as a director from acting in the best interests of the shareholders to ensuring the creditors’ position is maximised. If your company is insolvent whatever you do from now on you must act to maximise creditors’ interest - that’s the law.
However there may be other options besides compulsory liquidation of the Company. The options are as follows:
If your Company is facing any of these issues, there is an enormous amount of assistance available to help you either rescue the company or restructure it by recovering debts and dealing with contractual disputes, as well as minimising the impact of insolvency by;
- Selling some of the assets of the company;
- Collecting money due to the company;
- Agreeing creditors’ claims;
- Distributing the money collected after paying costs.
An Insolvency Practitioner (IP) can assist with this and he may well work on a CFA with the benefit of ATE insurance to recover money and debts due to the Company. An IP’s work involves dealing with many competing interests, but usually their main duty is to look after the interests of creditors. The least damaging and most effective way of dealing with insolvency is to understand whether you have sufficient assets and debtors to avoid insolvency and enter into a Company Voluntary Arrangement (CVA).
Company Voluntary Arrangements (CVAs)
A company voluntary arrangement is a deal between a business and its creditors. This can include the negotiation of unsecured debts and assets, trade and tax. Initiating repayment plans from future profits, or through the sale of assets for immediate balance settlements.
The advantages of this are that you as a Director may be able to remain in control of the company or business, with other negotiable factors depending on the CVA supplier and business circumstance, including the absence of guarantees and flexible costs. If 75% of creditors approve a CVA the Insolvency Practitioner then supervises the process and once the liability to the creditors is cleared the Company can continue to trade.
Advantages of CVAs
A CVA is a popular approach when faced with the prospect of liquidation. It can be very advantageous to a company if they have experienced trading difficulties and need time to prove their business model and that they can be successful.
A CVA is also a popular option for companies that may need time to come up with a new business plan, if they will be profitable in the long term but are suffering from debts in the short term.
Getting the right support and advice at an early stage is critical to the eventual outcome of businesses that are potentially insolvent but have the potential to trade out of it.
Please Note: This document is for general information only. It is not legal advice and should not be acted or relied on as being so. It does not create a solicitor-client relationship between Temple Legal Solutions Ltd and any other person. Legal advice should be taken before applying any information in this document to any facts and circumstance.
If you contact Temple Legal Solutions or call 01483 514814 to make an initial enquiry, you will then referred to an appropriate, experienced law firm.