What is insolvency?
Business can be tough and if you find yourself or your business in a situation where you can no longer pay your debts, or your total assets are worth less than your financial liabilities, it means that your business is insolvent.
It’s illegal for you to continue trading if your business in unable to pay its debts as they are due. The quicker you seek professional advice and take action the better.
Our team of experienced Insolvency Practitioners can support you in making the tough decisions, ease cash flow stress, get on top of debt and get your life back.
While business insolvency is inevitably challenging for any business owner it also doesn’t have to mean the end of the business and there are a number of options to consider.
What are my options!
professional support and the best solution to move forward.
Creditors’ Voluntary Liquidation (CVL) is an option for directors to formally close a company, to involve creditors to liquidate it. If you’re in financial difficulty and unable to pay debts, you can close an insolvent company voluntarily.
Members’ Voluntary Liquidation (MVL)
Members’ Voluntary Liquidation (MVL) is an option to close down a solvent company. It may mean a company has fulfilled its purpose, the directors wish to retire, or it’s stopped trading, but all debts can be paid in full. An MVL allows the shareholders to realise their investment in a tax-efficient way.
Company Voluntary Arrangement (CVA)
A Company Voluntary Arrangement (CVA) is a rescue option for companies that are struggling to pay their debts. It is a formal agreement between a limited company and its unsecured creditors to pay off all or part of its debts over an agreed time period. If the creditors agree, you can carry on trading
Administration is a formal procedure available to a struggling (or soon to be insolvent) company. An insolvency specialist can be appointed to be an administrator to take careful control and rescue the company and leverage assets to repay creditors and help gain a foothold to business recovery.
Individual Voluntary Arrangement (IVA)
An individual can propose an Individual Voluntary Arrangement (IVA), which is an option to agree with creditors to repay all or part of your debts over a period of time. An IVA is a way to help you get back on your feet and regain control by making payments to avoid looming bankruptcy.
Bankruptcy is an option to help people who are no longer able to pay their debts. At a time when it could feel quite lonely, bankruptcy is a way that may be right if you are insolvent. Going bankrupt is a difficult landscape to navigate – we can reassure your creditors and help you towards a fresh start.
Informal strategies and refinancing
Informal options are about renegotiating existing debt with different finance terms. It’s tough but if you have a small number of creditors, you or an appointed representative can reschedule debt repayments with each creditor. Income and assets may be offered as security as a refinance option.
You become insolvent when you can either no longer pay your debts as they fall due, or when your total assets fall below the worth of your total liabilities. A company can fall insolvent even while profitable, this may be because of a shortage of cash, like when customers can not settle debts to a company or if the company invests at the wrong time. Any of these issues may mean that the company is unable to repay debts as they fall due, even though the business is otherwise healthy. If you notice any of these issues, then it is imperative to seek proper advice from an insolvency professional at the first sign of warning that the business may be insolvent.
If you believe that your company is insolvent, then it is essential that you take action to minimise the loss of creditors to your company. Your first duty should be to seek advice from a licensed insolvency practitioner to ensure that your company falls into further financial issues. It could be that the company’s cash-flow issues are manageable in the long term and if this is the case then you may be able to arrange additional financing or come to an agreement with creditors with revised terms of payment.
Firstly, as insolvency practitioners, we offer an initial consultation free of charge. Whilst there may not be a great amount of funds within the company, the guidance of an insolvency practitioner could end up preventing creditors taking legal action against the company and bringing further financial difficulty, meaning the costs of paying for professional assistance could be relatively small in comparison.
Even since the introduction of the Insolvency Act 1986, anyone that undertakes the duties of a liquidator, administrator, administrative receiver, supervisor or trustee must be qualified as an insolvency practitioner.
A partnership voluntary arrangement (PVA) is a legal agreement between a partnership and its creditors to repay their debts, usually through an agreed affordable monthly payment over a five-year period. The amount agreed to must be reasonable and usually results in a percentage of the debt being repaid and the remaining balance being written off. For an PVA to come into effect, at least 75% of creditors who vote on it must agree to its terms.
A CVA is a solution for companies grabbling with debt repayment challenges.
It entails a formal agreement between a limited company and its unsecured creditors to settle some or all of the debts within an agreed timeframe. If creditors consent, the company can continue operating.
A member’s voluntary liquidation (MVL) is often referred to as a solvent liquidation as it is used to liquidate a company that still has a surplus of assets. This process is often preferred when directors or shareholders have decided to bring the company’s life to an end and extract the remaining assets in the most tax efficient way. The tax rate payable on the remaining assets will only be 10% if entrepreneurs’ relief is available.
A creditors voluntary liquidation (CVL) is an insolvency process which sees an insolvent company placed into liquidation, bringing its life to an end. A CVL is an out of court procedure which sees the use of a private sector insolvency practitioner rather than the courts and the insolvency service. It tends to be a quicker and more cost-effective way of placing a company into liquidation. A CVL can also be used to create a phoenix company, which can see assets increased, jobs saved and an increase in the return that creditors can expect to receive.
Paul Bailey FABRP, Tom Ahmad FABRP ACA, Matt Reeds MABRP and Kirren Keegan MABRP are licensed to act as Insolvency Practitioners in the UK by the Institute of Chartered Accountants in England & Wales