What Does it All Mean – Simple, Quick Overview

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As business owners continue to face difficult and uncertain times, I thought it useful to provide a quick reference guide.

When a company or individual can’t pay what they owe on time, or when the value of their assets is less than the money they owe, having an early discussion can allow you to understand the different options open to you. It’s worth noting that not every business with a debt problem needs to close down or end up needing a formal solution. At Lucas Ross we will discuss options and advise based on the different factors’ individual to your circumstances.

This article is to quickly review some of the options available with regards insolvency. Not all of them are terminal.  

CORPORATE INSOLVENCY SOLUTIONS  

Company Voluntary Arrangement (CVA) 

A Company Voluntary Arrangement allows a company that owes money to enter into an arrangement with creditors to repay its debts or a percentage of them. In voluntary arrangements, the IP will initially be the nominee for the proposed arrangement. As nominee, the IP has to make sure creditors receive the information to decide whether they want to approve the arrangement. If the arrangement is approved, the IP will become the supervisor and be responsible for making sure any agreed terms are met.

Administration  

An Administration allows an IP to try to rescue a company or sell its assets to repay the creditors as much of what they’re owed as possible. In some cases, the IP advises the directors or major creditor on the different options available before the administrators is appointed. A Pre-Pack Administration is an arrangement under which the sale of all or part of the company’s business and assets is negotiated with a purchaser before the administrator is appointed. Soon after appointment, the administrator completes the sale. If there’s been a pre-pack, the administrator will send creditors notification explaining why the pre-pack was appropriate.

Receivership

A Receivership is a procedure to recover money lent to a business for a secured creditor (suck as a bank). In some receivership situations the IP advises directors or the secured creditor on the different options available before the receiver is appointed.

Liquidation

In liquidations, assets are collected and sold by the IP. The proceeds are used to pay creditors, in a specific order. The courts can order compulsory liquidation (called Winding Up) or directors of the company may decide to put the company into Voluntary Liquidation. In a compulsory liquidation, the Official Receiver initially acts as liquidator. An IP may be appointed later. Before a voluntary liquidation, an IP may help directors meet legal duties, calling meetings of shareholders and seeking a decision from creditors. If a business is solvent, it may be wound-up in a Members Voluntary Liquidation. An IP must still be appointed liquidator and it must be possible to pay all creditors in full, with statutory interest, if applicable.

SOLUTIONS for INDIVIDUALS  

Individual Voluntary Arrangement

An Individual Voluntary Arrangement (IVA) is a process that is normally undertaken to avoid bankruptcy. An individual who is insolvent or unable to pay their debts may put forward a proposal to their creditors for an IVA

Bankruptcy

Bankruptcy can provide an individual with a sense of relief knowing that their debts have been cleared allowing a fresh start. If you are thinking about going bankrupt STOP! It may not be the best option for you. Take advice from an IP to talk through your options. 

Debt Relief Order

Debt Relief Orders provide individuals with relief from their debts by placing a “freeze” on any action taken by creditors to recover their debts without the court’s permission. However, to qualify for a DRO certain criteria must be met.

How Lucas Ross- Business Rescue, Recovery & Insolvency can help?

We are dedicated to providing advice and guidance if your company is facing financial distress. Contact our team today on 0330 128 9489 or email us on [email protected] to arrange a free no-obligation consultation with one of our licensed insolvency practitioners in your local area.