There are a range of different routes that may be used to help a company in financial trouble. The type of procedure chosen will vary depending on the severity of the debt and the company’s future prospects. It is important to seek expert corporate insolvency help early on in order to fully understand the options available and to make an informed decision about the future of your company.
A business will be considered insolvent if it is unable to pay its debts when they fall due for payment or has no realistic prospect of paying them. This can be caused by a number of reasons, such as rising vendor costs that are passed on to consumers or a law suit from customers that can take up valuable time and resources. It could also be the result of a cash flow problem that isn’t being resolved by an injection of capital. Ultimately, if a company can no longer meet its obligations to creditors it may be necessary to consider insolvency procedures.
One option for companies in financial difficulty is a Company Voluntary Agreement (CVA). This involves the company entering into an agreement with its creditors to re-structure their debts to enable the company to continue trading. The process can also offer protection from creditor action. In order for a CVA to be approved, 75% of creditors need to vote in favour of it at a meeting of creditors.
Another option is administration. This can be applied for by the court, the directors of a company or a creditor with a floating charge over a company’s assets. Once in place, the administrator will take over the management of a company and have wide-ranging powers. They will realise the company’s assets, distributing the proceeds to secured and preferential creditors.
If a company has been put into Administration, it is likely that employees contracts of employment will be transferred over as part of the sale of the business in order to safeguard their employment rights. During this time, the insolvency professional responsible for the company will be in regular contact with employees to explain their position.
A final option is compulsory liquidation (CVL). This is a court-driven process that will see the appointment of an insolvency practitioner to handle the sales of the company’s assets and stock. If no buyers are found, the company will be wound up and any money left over will be distributed amongst creditors. The liquidation process can be very complicated and is a last resort for a company that has no prospect of continuing to trade.