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From NI: 028 7187 8141  |   UK: 01202 237 337  |  From IRELAND: 074 9364000

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Statutory solutions

There are a variety of solutions set out in the legislation, primarily the Insolvency Act 1986. These solutions are generally binding on the parties involved and there is a body of case law to assist with resolving any disputes. By entering into a statutory insolvency solution as soon as they become aware that a Company is insolvent, Directors are usually protected from personal liability for the Company’s losses, although there are still circumstances where their prior conduct could leave them liable financially and/or subject to disqualification proceedings.

Administration

An Administration (ADM) is designed to hold a business together while plans are formed either to put in place a financial restructuring to rescue the Company, or to sell the business and assets to produce a better result for creditors than a liquidation. Administration can also be used where neither of these objectives can be achieved, simply as a mechanism to liquidate assets and distribute the proceeds to secured or preferential creditors, but this is not the primary purpose of the law.

Once an Administrator is appointed he takes over the running of the Company from the Directors and is responsible for any decision to continue or discontinue trading and he has control over how the Company and/or its assets are disposed of. The ability to continue trading depends on the availability of funds for working capital, the willingness of existing suppliers and customers to deal with the Company in administration and other factors specific to the Company’s business, such as licensing rules.

Company Voluntary Arrangement

A Company Voluntary Arrangement (CVA) is a procedure which enables an insolvent Company to reach an agreement with its creditors to delay or compromise the payment of its debts.

A CVA is flexible and can be adapted to meet the needs of any business. In essence, a CVA will replace the terms of the Company’s existing contracts with its creditors with new terms as set out in the CVA proposal. For example, the proposal might require the Company to pay a fixed monthly sum into the arrangement for a set number of years so that creditors receive a minimum dividend of Xp in the £. While the payments are maintained and no further action is necessary, the Directors retain control of the Company and once the arrangement is successfully concluded the Company remains in the control of its existing members and management.

Creditors will usually agree to support such a CVA where it can be shown they will achieve a better outcome than if the Company was liquidated and the business and assets sold. They may also want to see changes to the management and operations of the Company to ensure that similar difficulties will not arise again and the Company will successfully complete the CVA period. For smaller companies, a moratorium is also available which allows the Company a ‘breathing space’ in which to propose and implement a CVA without the threat of proceedings from creditors. Alternatively, particularly for larger companies, protection from creditors may be obtained by use of the administration procedure prior to proposing a CVA.

Creditors’ Voluntary Liquidation

Creditors' Voluntary Liquidation (CVL) is the process where the Directors of an insolvent Company can voluntarily take steps to wind up the Company. The Directors convene meetings of the Company's shareholders and creditors to consider resolutions to wind up the Company and appoint a Liquidator.

Once appointed, the Liquidator takes control of the Company from the Directors and although a short period of trading may take place to complete outstanding contracts, it is more common for the Company to cease trading and its assets are sold to repay the costs of the liquidation with any surplus being paid to creditors in the priority set out in the legislation.

Compulsory Liquidation

Compulsory Liquidation (CWU) is the process where the court orders that the Company is wound up. The Official Receiver is initially appointed Liquidator although he may subsequently be replaced by an insolvency practitioner.

Once appointed, the Liquidator takes control of the Company from the Directors and although a short period of trading may take place to complete outstanding contracts, it is more common for the Company to cease trading and its assets are sold to repay the costs of the liquidation with any surplus being paid to creditors in the priority set out in the legislation.

Members Voluntary Liquidation (MVL)

A Members Voluntary Liquidation (MVL) enables shareholders to put a solvent company into liquidation in order to unlock their capital. It can be used to secure an orderly winding up of a company or to close down a subsidiary (within a group of companies) that has outlived its usefulness. Shareholders appoint a Liquidator. The process ends the life of the company, leaving no outstanding matters and provides a potentially tax efficient exit route for shareholders.

What does solvent mean?

It means that the company can pay all of its liabilities in full, plus statutory interest, within 12months of a declaration of solvency being sworn.

When is the MVL procedure appropriate?

When a solvent company has come to the end of its useful life and needs to be wound up. Someexamples are:

•Shareholders want to retire and have assets within the company which they want to transfer into their personal estate.

•Changes in the market which result in the company no longer being viable.

•There has been a breakdown in the relationship between directors.

•It is an old established family business where the owners / parents have retired and children / family do not want to run the
business.

•Where the restructure or closure of a single or group of dormant companies is required; this could involve more than one MVL.

Contact us today and let us steer you through the choppy waters to get you back on an Even Keel

Even Keel Financial Ltd. is authorised and regulated by the Financial Services Authority. (CCL 0643158)
Dorothy Brown is a Licensed Insolvency Practitioner authorised by the Institute of Chartered Accountants of England and Wales