Published: 26/01/2021 By Jane PriceWe’re here to help
As business owners continue to face difficult and uncertain times some directors find themselves in a difficult situation where the company can’t pay what they owe on time.
You may not know what to do for the best so here is some information that you may find useful and put your mind at rest.
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, the best advice is to contact a licenced Insolvency Practitioner (IP) to talk through all the 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. The IP will discuss options open to you and which route is taken depends on a combination of factors.
There are different types of insolvency procedures and not all of them 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.
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.
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.
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.
Take the corporate Insolvency Test
SOLUTIONS for INDIVIDUALS
Individual Voluntary Arrangement
An 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 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.
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