Here at Isadore Goldman we understand that being a stakeholder in a business with financial difficulties, whether as a director, partner or sole trader, is a very lonely and distressing place.The temptation can be to bury your head in the sand or to simply pass the papers to your accountant in the hope that the problems will go away.
All too often we see one or more of the following scenarios. A stakeholder might pump more of their own money or their family’s money into a venture with little hope of being repaid, or give yet further personal guarantees to the bank and other creditors. Alternatively, they might try to quickly recover monies owed to them by their failing business leaving them vulnerable to future proceedings by an “office holder”, whether a liquidator or an administrator.
Most stakeholders have good relationships with their accountants who can be a reassuring face in troubled times and will help with cash flow forecasting and other activities. However, unless your accountant is an insolvency practitioner, or has ready access to a firm like Isadore Goldman specialising in insolvency, the chances are that they do not have the knowledge required to steer you through the bumpy road ahead.One thing you will need to consider straight away is whether you need help for your business, or for yourself as the owner of that business. This is an important distinction that can lead to unfortunate consequences if ignored.
A company is considered insolvent when it cannot afford to pay the debts that it has. Isadore Goldman has a wealth of experience in corporate insolvency law and helping businesses find the best way through the process.
Company insolvency statistics for 2019 show that there were 17,196 underlying company insolvencies in 2019, a 6.8% increase on 2018 and the highest level of underlying insolvencies since 2013.
Businesses often have temporary struggles with cash flow, but if your creditors are chasing for payment that you are unable to afford, it is best to seek advice as soon as possible. If you would like a no-obligation consultation with one of our insolvency lawyers, please get in touch.
What is corporate insolvency?
Under English law, a company is insolvent when it cannot pay its debts. The following two tests further confirm this:
Cash-flow test – is the company currently unable to pay its debts, or will it be unable to do so when they become due for payment?
Balance sheet test – does the company's assets value less than its overall liabilities? This should also take into account future or uncertain liabilities.
If the answer to either of the above is yes, then it is likely that the company is insolvent. Also, a company is insolvent if a judgement or court order has not been satisfied, or if a creditor has served a formal demand and the debt that not been paid within 3 weeks.
Who we can help
Our approach to corporate insolvency is one that is practical but sensitive and works to
Resolve matters in the best way possible for our clients. We take the time to understand your business to develop a reliable and long-lasting relationship.
Our expert insolvency solicitors assist businesses in a range of situations:
- Companies in financial difficulty.
- Companies facing winding up orders or statutory demands.
- Directors facing personal liability.
- Directors being chased by the Insolvency Service.
- Insolvency practitioners recovering assets.
- Shareholders claiming against directors for causing a company's insolvency.
- Liquidators with claims against directors or shareholders of insolvent companies.
- Company Insolvency Procedure
A company can be placed into insolvency by its directors, shareholders, creditors or the court. There are several corporate insolvency procedures in the UK, all of which must be managed by an appointed insolvency practitioner (IP). The procedures include:
1. Company Voluntary Agreement (CVA)
This is a legally binding agreement between and company and its creditors to pay all or some of the company's debts over an agreed period of time. This allows the company to continue trading during the CVA and after. It can be proposed by the company directors but not its creditors or shareholders.
In administration, a company is handed over to an insolvency practitioner (the administrator) to manage. This stops any legal action by creditors or compulsory liquidation unless the court permits it.
Whilst in charge, the administrator delivers proposals to:
- Make arrangement/s with the creditors (a CVA).
- Re-establish the company's viability.
- Sell the business or release more from its assets than liquidation could.
- Release assets to pay creditors.
The creditors will need to decide whether to agree with these proposals. It can mean that the creditors receive a better result from the proposed actions than if the company was wound up. Administration can mean that your company can continue to trade and not pay its debts in full, but there is a chance that it is still wound up by agreement of the court.
3. Administrative receivership
Receivership is initiated by the holder of a floating charge against a company that predates September 2003. An administrative receiver (usually an insolvency practitioner) is appointed to sell the company's assets to pay off its secured debt. The holder of a floating charge is typically a bank or other financial institution. Administrative receivers cannot pay unsecured creditors without court approval; therefore, this procedure has mostly been superseded by administration.
Liquidation legally winds up and closes and limited company. The company will cease doing business and employing staff and will be removed from the Companies House register. It will effectively cease to exist.
A solvent company will be closed by its directors through a 'members voluntary liquidation' process. The assets will be converted to their cash value and distributed to its shareholders.
An insolvent company will be closed through a 'creditors voluntary liquidation' or 'compulsory liquidation'. The assets will be converted to their cash value and distributed to. its creditors.
The liquidation process is overseen by a liquidator, either an insolvency practitioner or the official receiver. They will ensure the following actions are taken:
- Ensuring all company contracts are completed, transferred or ended.
- Cease the company's business.
- Settle any legal disputes.
- Sell all assets.
- Collect any monies owed to the company.
- Distribute funds to creditors.
- Repay any share capital to shareholders.
Corporate insolvency litigation can be stressful and complicated, but help is available. We will help you understand the current situation of your business and the options that are available to you. If legal action is the only option, we will support you and wherever possible and achieve the outcome that you are looking for.
We offer all prospective clients a free, no-obligation consultation. This will allow you to get to know who we are and how we work, but also for us to give you preliminary advice and the options that may be available to you.
If you need more information, please contact our specialist insolvency lawyers today to discuss your situation.
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