There are many alternative routes that companies can take in order to avoid liquidation
. By looking at other options available, companies can increase their chances of getting the business back on its feet whilst paying off debts. The companys financial situation will determine whether or not liquidation is the best option. If a company is severely in debt, then there may be no choice but to liquidate the company but seeking financial advice is always a good idea before doing so.
A popular alternative to liquidation is a Company Voluntary Arrangement (CVA). This involves the company making an agreement on when creditors should be paid and how much they will be paid. A Company Voluntary Agreement is legally binding but helps board directors and shareholders to keep control of the company as opposed to liquidation, where the company is controlled by a liquidator.
Another option is Administration, where an insolvency practitioner is appointed as an administrator in order to help the company work out a payment plan for creditors. Although more costly, Administration can be highly advantageous for companies that are experiencing problems with creditors demanding payments. In order for an insolvency practitioner to act as an administrator, they must be licensed.
An informal arrangement is also an option, where the company simply makes agreements with creditors without any legal binding. Informal arrangements are a good option for companies who are experiencing minor insolvency issues. It is also a less costly alternative to a Company Voluntary Arrangement or the Administration process.
A legally binding Company Voluntary Arrangement may be a safer option for those who wish to avoid having to make any changes due to creditors changing their minds about the agreement. There is also a chance that if you do opt for an informal arrangement, creditors may refuse to accept reduced payments, so it also always a good idea to opt for a process that is appropriate for the companys financial situation.