Corporate Insolvency

Is your business facing a winding up petition? Has a director’s actions caused the company to be in financial ruin?

BPS have experience with all aspects of corporate insolvency – whether that be on behalf of the office holder, or assisting the former officers/shareholders of a business deal with a dispute our experienced solicitors think laterally and have an in depth understanding of the issues which can arise when a business is faced with insolvency.

What is the test for insolvency?

Your company will be considered to be insolvent under English law if it is unable to pay its debts.

There are two tests to determine this:

The cash-flow test:
The balance sheet test:
If the answer is YES to either of these two tests, then your company would probably be regarded as insolvent.

What is the Insolvency procedure?

Your company can be placed into a formal Insolvency procedure by you (as a director) or its shareholders, creditors, or the court. BPS will guide you through the different options available, and help you achieve the best possible outcome using sound, commercial sense.

What happens when a company becomes “insolvent”?

As your company nears Insolvency, there are four main procedures by which your company could potentially be rescued or wound-up:

As your company nears Insolvency, there are four main procedures by which your company could potentially be rescued or wound-up:
Whichever it is for your company, it will be run under the control of an appointed Insolvency Practitioner who will be professionally qualified and licensed to carry out the procedure.

What is a Company Voluntary Arrangement?

A Company Voluntary Arrangement, or CVA, is a binding agreement between your company and its creditors.

You (as a director) and your fellow directors may instigate the CVA but if already appointed, an administrator or liquidator can also propose it. Under the CVA your creditors will agree to a reduced (or rescheduled) debt arrangement in return for a commitment by your company to restructure its business’ affairs under a new business development strategy. The procedure will take place under the supervision of an appointed Insolvency Practitioner, where your directors will submit a report on your company’s finances together with a proposal for reducing the debt. For example, you and your fellow directors might propose that each creditor accepts 50 per cent of the money owed to each of them, and to spread repayments out over a number of months or years.

This procedure and agreement will be legally regulated and should allow your company to carry on trading.

What is Administration?

Administration is a company rescue procedure under which your company’s assets will be protected by stopping any form of creditor action. However, this is done for the benefit of your creditors, not you.

With this procedure, a qualified Insolvency Practitioner (known as the Administrator) will replace you (as a director) and the entire board of directors.

The Administrator then has a public duty to:
Essentially, this means that your Administrator will have a wide discretion to do whatever they think is best. They could decide to save your company (allow it to continue and trade on), sell the business, or wind it down.

Your Administrator will do the following:
If your creditors do not approve the proposal then the court may make an order.

What is Administrative Receivership?

Due to a change in the law, Administrative Receivership (AR) has been mostly superseded by Administration. Nonetheless, AR is a procedure available for some companies where the holder of a floating charge against your company which pre-dates 15 September 2003 (this could be a secured creditor such as your company’s bank) appoints an Administrative Receiver (Insolvency Practitioner) to sell your company’s assets for maximum value in order to pay off its secured debt.

The good news, if there is such a thing in these circumstances, is that Administrative Receivers have no authority to pay your unsecured creditors. Doing this will usually require a Liquidation.

What is Liquidation?

Liquidation is the process used to close down your company (stop trading) by converting all of its assets into cash value. This means your company's assets are broken up, sold off and then distributed to the following:
If your company is insolvent and Company Voluntary Arrangement, Administration, Administrative Receivership procedures are not used then your company will be Liquidated, and a Liquidator will be appointed.

When your company is placed into Administration or Liquidation the following creditors will be repaid, depending on the amount of cash available:
What’s the upshot of Insolvency?

As with Bankruptcy, it’s likely that your case will be unique. But there are some general consequences of Corporate Insolvency that could apply to you and your company:
How can an BPS help?

Our experienced solicitors will be able to advise you on all the legal issues which are likely to arise in your Corporate Insolvency circumstance, including advice about:

  • Appointment of an Insolvency Practitioner;
  • Recovering assets and realising assets including business and asset sales;
  • Trusts and other equitable rights;
  • The validity of a lender’s security (if applicable).

For further information or to make an appointment to see us