Where The Bankruptcy Companies Can Help
When one of the 'bankruptcy companies' run by insolvency practitioners (or 'IPs') becomes involved with a business it is often seen as the end
. But in reality, some Insolvency procedures are designed to help businesses in difficulty. This article describes the main insolvency process and when they should be used.
Current UK insolvency processes divide into four main groups depending on the intended outcome.
Solvent liquidation
Confusingly, the first insolvency process of a Members Voluntary Liquidation (or 'MVL') is in fact only open to solvent companies. This is used where a company's affairs need to be shut down on a final basis and any assets distributed, but where its liabilities will be paid in full within a year. They therefore tend to occur as tax driven exercises in tidying up group structures.
Administrative Receiverships
These are a procedure whereby a particular type of creditor (normally a bank) can appoint an IP to take over a company's business so that it can be run and sold to recover money for the appointer. These are however now rarely used following changes in the law introduced in the Enterprise Act 2002.
Insolvent liquidation
Insolvent liquidations are ones where the company will not be able to pay all its liabilities.
They can be either a Compulsory Liquidation, which is created by the granting of a winding up petition by the Courts, or a Creditors Voluntary Liquidation ('CVL'), which is where the shareholders vote to place the company into liquidation.
In either event, these processes are designed to cover the closure of a business that has failed. In any insolvent liquidation the IP takes charge of the business which will cease to trade if it has not done so already. The IP's job is then to gather in and sell all the company's assets, agree the creditors' claims and pay out a dividend to creditors where possible.
The liquidator also has a duty see whether there are any pre-liquidation transactions that should be challenged as preferences or transactions at an undervalue. They are also required to investigate the causes of the insolvency and to file a report on the directors' conduct.
For individuals and unincorporated businesses the equivalent procedure to insolvent liquidation is bankruptcy.
Rescue procedures
In addition to providing the ways in which to deal with burying a 'dead' business, the insolvency act also provides two tools to help with attempting to save a sick one.
Company Voluntary Arrangement (or 'CVA')
A CVA is a mechanism whereby you can propose a formal deal with your creditors in full and final settlement of your current liabilities, which, if it is agreed by the required majorities voting in favour, will bind all the creditors that you have notified whether they voted for it or not.
It can therefore be a powerful tool in getting legal protection for a sensible scheme under which you agree to pay your creditors some specified dividend over a specified period. Other advantages are that, while a CVA is supervised by an IP, the business remains under its directors' control, the IP does not have to file a report on the director's conduct, and it is a private arrangement between the company and its creditors.
Against this, you should normally reckon on it taking about six weeks from starting the process to having the proposal approved by creditors, during which time the business will be particularly vulnerable to action by both its creditors and its competitors.
There are equivalent procedures for individuals (an 'IVA') and partnerships ( a 'PVA')
Administration
Administration is a process whereby an IP is placed in control of a company's affairs and the primary purpose that he has to consider is achieving the survival of the company as a going concern. The appointment of an Administrator automatically protects the company from almost all legal actions by creditors. So one way that Administrations are used is to provide a protective wrapper around a business while a CVA is put in place.
If it is not possible to achieve the survival of the business as a going concern, then the IP can look at achieve the other objectives which usually involves obtaining a better realisation in the interests of creditors than may be possible in a liquidation. In practice this means using the IP's powers to trade the business as an Administrator to seek a buyer for the trading business and its assets as a 'going concern', rather than having the type of 'break up' sale required in a Liquidation.
Of course the information contained in an article like this can never be a full statement of the legal position as the relevant laws are complex and liable to change. This article can only therefore be a general guide as to the issues involved and as these can have serious implications you should always seek appropriate professional advice on your own particular circumstances before taking any action.
by: Mark Blayney
How Can Bankruptcy Help Me? Bankruptcy How To Look For A Bankruptcy Attorney Filing Bankruptcy Under Chapter 13 Reaffirming Debts Could Be an Option in Bankruptcy Bankruptcy Information: Facts You Must Consider The Facts About Chapter 13 Bankruptcy Houston Bankruptcy Lawyer Answers Frquently Asked Questions Debt Consolidation Vs. Debt Settlement – What's Best ToAvoid Bankruptcy? Eliminate Credit Card Debt Without Bankruptcy – The Most Legitimate Debt Relief Solutions Credit Card Debt Relief Options – Avoid Bankruptcy With These Top Debt Relief Solutions Debt Relief Solutions – 3 Simple Solutions To Avoid Bankruptcy And Eliminate Debt New Bankruptcy Laws - Permanent Changes in Discharging Debt Through Bankruptcy