What is corporate insolvency and what are its consequences?
The corporate insolvency procedures are designed to protect the interest of creditors so that they are treated fairly. A company becomes insolvent if the value of its debts are greater than the value of its assets or that it is no longer able to pay its debts as and when they fall due.
There are procedures available to rescue and turn around a business despite being insolvent and seen as a last resort. These are:
- Company Voluntary Arrangements;
- Administrative Receivership;
- Law of Property Act Receiver.
These procedures offer a chance for the business to survive and remain in the control of the directors. Alternatively, they can provide breathing space whilst a plan is put together to sell the business and assets as a going concern.
The turnaround procedures mentioned above are in contrast to:
- Creditors Voluntary Liquidation (winding up by resolution of the directors and shareholders);
- Compulsory Liquidation (winding up by court order);
- Members Voluntary Liquidation (solvent - initiated by the directors with a return of assets to the shareholders).
Once an insolvency regime is in place it often leads to a number of issues concerning the management of the business, the role and conduct of the directors and the ranking of creditor claims.
Corporate insolvency procedures can be commenced by directors, creditors or a lender who has the benefit of a charge either through the courts where an order is made or outside of the court system.
We offer assistance on all legal and commercial issues which arise in any corporate insolvency procedures including dealing with the appointment of an insolvency practitioner, advising on the validity of a lender’s security and dealing with the sale of a business and assets.
It sounds a bit drastic….can I really use it to the advantage of my business?
If your business is struggling financially it is essential that you seek our advice as early as possible. The procedures available need to be explored with a view to rescuing the business as a going concern. We will work with an insolvency practitioner and possibly a lender who can help you navigate the path to turning around your business so it can continue to trade.
It might be that some unforeseen event causes you to consider the future of your business. We can offer the support you need at this time.
Alternatively you may need advice in order to protect your position personally as a director or shareholder. It is the directors’ responsibility to take advice to protect the position of the creditors and the shareholders.