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 and restructuring, 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.
If you are a director of a company in financial trouble, and want help for the business, you will need advice on the restructuring/rescue options available to it, for example refinancing, informal restructuring, or Administration or a Company Voluntary Arrangement. These last two are technical terms which are explained elsewhere on this page. You may also need the help of an Insolvency Practitioner (IP). We have long-standing relationships with many IPs all over the UK and can point you in the right direction.
If you are a partner of a large or small business in difficulties, or a sole trader, there are a number of rescue options available including a Partnership Voluntary Arrangement or a Individual Voluntary Arrangement, about which we have considerable expertise.
Whatever your business, you will also need to understand the rights and enforcement strategies of its secured and unsecured creditors (especially the banks and HMRC). We can help if direct negotiations with creditors is the best way to resolve your problems.
If you are looking for advice about your personal position, please be aware that IPs (or “office holders”) are usually only paid from the assets and money they recover so they will have every incentive to pursue claims against you personally if they feel a claim can be maintained. If you are faced with this type of threat, visit the page on our website devoted to business owners: Claims against Directors, and in particular the section dealing with Office Holder Claims. If you are facing directors disqualification proceedings, visit the page on our website devoted to that subject.
In many cases a stakeholder will want to retain the assets of the business, its clients or the name. Our specialist team can help you.
The earlier you seek advice from a specialist the better it is for you. The temptation is to ignore the warning signs that your business is in trouble and then delay until every other option you have explored has failed. However, the earlier you seek advice the more options will be available to you and the more you will be in control of your destiny.
At Isadore Goldman we understand what you are going through. We have access to a bank of Insolvency Practitioners and funders who may be able to assist. Likewise we are able to advise you on the formal insolvency procedures most commonly used, namely Liquidation, Administration, Company Voluntary Arrangements or Individual Voluntary Arrangements and their impact upon you.
Company Voluntary Arrangement
A company voluntary arrangement (CVA) is a formal agreement between a company and its creditors (i.e. people who are owed money) and is typically suitable where you have a viable underlying business and you simply need time to repay some historical debt that has built up and which can be repaid over time - generally in a lesser amount than originally owed. The debts can be repaid in instalments (typically monthly) or via a sale of company assets. The CVA is approved by a vote and is approved if passed by a majority of the company’s creditors holding more than 75% in debt value i.e. the creditors with the biggest debts and more control over the vote. Once the CVA is approved, both the company and its creditors are bound by its terms and the agreement is then implemented and overseen by an insolvency practitioner (called the supervisor).
For distressed companies a CVA can provide an effective defence to a winding up petition (provided action is taken quickly) and a valuable tool on the road to recovery. It is flexible in the sense that the terms of the CVA are ultimately a matter for agreement between the company and its creditors. Once approved, it is also binding on all creditors and this can provide the company with a valuable period of protection from other creditors’ claims allowing it to improve cash-flow and increase working capital. It can be cheaper than other insolvency options and allows directors to retain control of the business as the company attempts to trade out of its difficulties. For the creditor, it can provide a better return than forcing the company into liquidation and provides the additional benefit of preserving a potentially viable customer for the future. A CVA typically lasts five years.
CVAs are usually set up by an insolvency practitioner, who will become the nominated supervisor, and will require close co-operation with the company’s accountants in the provision of financial information. Isadore Goldman can work alongside the company’s accountants and the nominated supervisor and provide advice to the company where necessary of its rights and obligations under the CVA. It can also represent the company at the meeting of creditors that approves the arrangement.
If a company cannot keep to the terms of the CVA, then it might be in default. In those circumstances the supervisor may have to petition to wind up the company. We can advise you on any potential defaults and the implications of them.
Administration is a business rescue process in which an insolvency practitioner (IP) is appointed to manage the company’s business with the aim of helping it to restructure, recover or regain control after a period of financial stress. During this period the directors must relinquish control over management of the company. The primary aim of administration is to rescue the company so it can continue trading as a going concern. If that is not possible, a secondary purpose is to achieve a better result for the company’s creditors (i.e. the people owed money) than would be achievable in a liquidation. If neither of these purposes can be achieved, its third aim is to collect in the company’s assets for distribution to its creditors. There are a number of routes into administration, which we can explain, but essentially such step can be taken by the company, its directors or a secured creditor (usually a bank or other lender). Except in complex cases, an administration typically lasts for a year although that period can be extended.
A key benefit of administration is that it provides the company with a period of reprieve, known as a ‘moratorium’ from creditors’ claims whilst it takes stock and considers its options. The ‘moratorium’ can be obtained by filing a notice at the court (usually the High Court) which is known as a “Notice of Intention to Appoint Administrators” or by making an application to court for an administration order. Once filed, this gives the company the protection of the moratorium for up to 10 business days and means no creditors can take any action against the company or its property without the permission of the court. A second notice, known as a “Notice of "Appointment” can be filed before the 10 business days are up which formally places the company into administration.
The primary aim of an administration, namely the rescue of the company as a going concern, is rarely achieved in practice. If it is achieved, the administrators hand control of the company back to the directors and the administration comes to an end.
More commonly, an administration will be used to achieve a fair distribution of the company’s assets to its creditors and the company is then closed down. The administrator will use various methods to collect in the company’s assets for distribution. This can include a sale of its assets or business to a buyer before the administrator is appointed, a so-called “pre-pack” sale. Depending upon the circumstances, the administration is then closed by the old company moving into liquidation or by simply being dissolved.
What is a pre-pack?
A pre-pack (short for -pre-packaged) is where there is a sale of a company’s business and assets immediately following the company going in administration and is generally seamless and without creditors knowing about it until after the event.
In order to be effective the proposed buyer, often referred to as ‘newco’ (short for new company - and typically owned by the current directors since they have most knowledge about the business and are therefore usually in the best position to make an offer), negotiate terms with the proposed administrator. If terms are agreed an ‘SPA’ (short for ‘sale and purchase agreement’) will be prepared which will transfer the ownership of the assets to the newco. As the proposed administrators have various regulatory and statutory duties they may insist that the business and assets are openly marketed for sale in the lead up to the pre-pack. Typically a SPA will provide for a sum of money to be paid on completion but there is also the possible to spread payment for the business and assets over a period of time – even as long as a year – although this would usually need to be guaranteed.
Liquidation (or a winding-up) is a formal process in which a company’s business is brought to an end and an insolvency practitioner (called a liquidator) is appointed to oversee that process. The closure process involves a number of steps including the collection of all available assets and subsequent sale and distribution to creditors (the people owed money by the company). At the end of the liquidation the company is dissolved which means that its name is removed from the public register of companies.
The liquidation of a company can be brought about in a number of ways. It can occur following a court procedure which starts with the filing of a winding-up petition and concludes with a court hearing at which a winding-up order is made. This is called a compulsory liquidation. The winding-up petition sets out the debt owed by the company to the creditor (the person owed money). The petition must be advertised before the scheduled court hearing so that everyone owed money by the company is aware of what is happening. At the formal hearing of the winding-up petition the court considers whether or not to make a winding up order.
Alternatively, liquidation can be brought about voluntarily following agreement by its members (shareholders) and/or creditors. There are two main types of voluntary liquidation: a Members’ Voluntary Liquidation (MVL) or a Creditors’ Voluntary Liquidation (CVL).
An MVL is a solvent liquidation, i.e. where a company is able to pay off all its debts. It is brought about by the directors of the company making a sworn statement that confirms the solvency of the company. The members (or shareholders) of the company must also pass a resolution resolving to wind-up the company. An MVL is often done as part of a tax efficient way of withdrawing assets from the company or where a company which to distribute distinct assets amongst its shareholders.
A CVL is an insolvent liquidation and is started by the members passing a resolution to the effect that the company cannot continue in business because of its liabilities and needs to be wound up. The members may also nominate a person to be liquidator. Within 7 days of the members resolution, the directors must prepare a statement of the company’s financial position (called a statement of affairs) and send this to the company’s creditors who then make their own nomination of liquidator. If the creditors’ choice of liquidator is different from that of the members, the creditors’ choice prevails.
Individual Voluntary Arrangement
An IVA is a formal agreement between an individual and their creditors that is monitored by a third party called a Supervisor, who is usually a lawyer or an accountant. Such agreement can provide considerable flexibility in the terms reached with creditors, and is approved by vote passed by a majority of the individual’s creditors holding more than 75% in debt value. It provides a mechanism whereby the debts can be repaid over time generally in a lesser amount than originally owed. Once the arrangement is approved, both the individual and the creditors are bound by its terms for the duration of the agreement. Isadore Goldman has considerable experience advising on and providing such agreements and will always strive to find the best and most cost-effective solution to the debtor. It can also advise a debtor who, for whatever reason, has been unable to comply with the terms of the IVA. If you would like to talk to us about this, or need any other bankruptcy advice, please get in touch.
Partnership Voluntary Arrangement
A PVA is a formal agreement between a partnership, its partners and their creditors that is monitored by a third party called a Supervisor, who is usually an accountant. Alternatively individual partners might enter into ‘inter-locking IVAs’ (see our separate section on IVAs - here).
Such an agreement can provide considerable flexibility in the terms reached with creditors, and is approved by vote passed by a majority of the individual’s creditors holding more than 75% in debt value. It provides a mechanism whereby the debts can be repaid over time - generally in a lesser amount than originally owed. Once the arrangement is approved, both the partnership and the creditors are bound by its terms for the duration of the agreement. Isadore Goldman has considerable experience advising on and providing such agreements and will always strive to find the best and most cost-effective solution to the debtor. It can also advise a debtor who, for whatever reason, has been unable to comply with the terms of the PVA. If you would like to talk to us about this, or need any other bankruptcy advice, please get in touch.
The information contained within this website is for information only and should not be construed as an accurate summary of the law or legal advice on any matter.