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Options and pROCESSES

The types of process for dealing with insolvent entities vary in severity and complexity.  The procedure chosen will also determine the likelihood of the business or company surviving in some form, employees keeping their jobs and the level of financial return to creditors and shareholders.

What is clear is that the earlier professional advice is sought the better and this gives more opportunity to rescue the business.

  • Dissolution – this is the process of ending the life of a company and can be undertaken by the directors of a business without external involvement.  However there are strict rules about when this procedure can be used.
  • Members Voluntary liquidation – this is where the business is solvent but the shareholders wish to cease trading and end the company
  • Informal arrangement – this is where a business agrees with individual creditors a restructuring or repayment plan.  It may be possible to bound the creditors contractually to this agreement but often requires payment in full.
  • Company Voluntary Arrangement – this is a formal agreement with creditors of the business over the repayment of amounts owed.  It is often based upon profitability and usually involves an element of debt forgiveness.  Company Voluntary Arrangements usually last around 3 years.  Control of the company remains with management.
  • Administration – this provides protection against creditors and a period to restructure the business.  It facilitates ongoing trading under the direction of an insolvency practitioner.  The company may chose to enter into Administration or a secured lender (e.g. bank) may appoint administrators.  Management lose control of the business within Administration.
  •  Administrative Receivership – a secured lender, under certain circumstances, may appoint a receiver to recover the amount owed to them.  The receiver effectively acts on the bank’s behalf and takes control of the company.
  • Creditors’ voluntary liquidation – if the business is insolvent the directors and shareholders may place the company into liquidation.  The business will normally cease to trade and the assets sold off by an insolvency practitioner acting as liquidator.
  • Compulsory liquidation – this normally occurs when a creditor applies to court for the business to be wound up.  The court places the company into liquidation and the Official Receiver becomes liquidator.  An insolvency practitioner may later be appointed liquidator in place of the Official Receiver.





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