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Four possible methods that you can use for company insolvency:
2. Company voluntary arrangement
4. Administrative receivership
The administration is the rescue procedure for a company whereby your business's assets have the protection because you also have the protection against creditor action. That's not to benefit you, however. Rather, it is to benefit the creditors.
It is the director's duty to:
- Not act to harm the interest of the creditors
- In the benefit of the creditors, to rescue the company
- Achieve improved results for creditors
- Conduct their function as efficiently and rapidly as is reasonably possible
The administrator can choose to effect the winding up, and then the distribution of assets should it not be feasible to rescue the company.
The administrator will also undertake a proposal of restructuring which he or she will give to the unsecured creditors and the registrar within an eight-week period. The project will undergo a creditor vote to approve or disapprove this proposal. The court can make an order should the lenders refuse.
Company Voluntary Arrangement
A company voluntary arrangement (CVA) acts as a binding agreement between the business and the creditors.
The directors can instigate the CVA, though proposal can also be presented by a liquidator or an administrator.
With a CVA in place, the company's creditors are likely to agree to a rescheduled or reduced debt arrangement providing your directors agree to restructure the business affairs of your firm through following a new business development strategy.
If your company is closed (it stops trading) and all of the assets are converted into a cash value, this is known as liquidation. The company will sell its assets, and then the cash value is distributed:
- If your business is solvent, to shareholders
- If your company is insolvent, to creditors
Depending on the cash that is available after liquidation, the creditors will get a repayment of the following:
- The fees and expenses which relate to the liquidation
- The liquidator's/insolvency practitioner's fees
- Preferential creditor claims
- Prescribed part (paid to unsecured creditors, the amount of which is set by the liquidator and can be up to a value of £600,000)
- Unsecured creditors' claims
- Fixed charge stuff (claims by secured creditors)
Administrative receivership (AR), due to an alteration in the law, has been superseded by the process of administration.
If they will undertake an administrative receivership, the administrative receiver (insolvency practitioner) does not have the authority to make payment to unsecured creditors. To achieve that, it requires liquidation of the company.
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