As Insolvency Practitioners, we do rather have the reputation of being the ‘undertakers’ of the financial world. Clients can perceive consulting with an IP as the ‘beginning of the end’ in the mistaken belief that all we do is close businesses down. This is very unfortunate as there is much we can do to facilitate business rescue when clients come to us soon enough!
All too often, a client will only admit to their accountant or other adviser that there is a problem when they are on the receiving end of a winding-up petition, often from HMRC – by this time, the petition is likely to have been advertised and the company’s bank account frozen which inevitably leaves limited options. Even in this scenario, there are still considerable benefits associated with implementing a voluntary liquidation through an IP rather than allowing the petition to take its course – but that is a subject for another article!
Keeping Your Non-Liquidation Options Open
When the IP is consulted early enough, and where there is a good underlying business, a couple of non-liquidation options can be considered:
Company voluntary arrangement (CVA)
This is where the company negotiates a formal agreement with its creditors to repay its debts over time. Although the arrangement is supervised by a licensed insolvency practitioner with a view to keeping things on track, the directors remain in legal control of the company. Given it is a formal agreement, provided the company sticks to the terms, creditors cannot change their minds after the event. CVAs can be wonderfully flexible – they can last from anything from a few months to a number of years and can involve payment of the company’s debts in full, plus interest, or payment of a reduced amount in full and final settlement. It all depends on the requirements of the company and its creditors.
However, you will appreciate that it is a little difficult (albeit not necessarily impossible) to implement a CVA where the company’s bank account has been frozen or it has reached a point where it has run out of cash entirely!
Another formal rescue procedure under the insolvency legislation is administration, with the main difference when compared to CVA is that the IP does actually take control of the business albeit often only for a short time. Administration can involve trading the business for a short time while a CVA proposal is formulated or a buyer is found. It can also involve the immediate sale of the business (often to the incumbent management team). A huge benefit of administration is that, in the run-up to the formal appointment of administrators, the procedure offers protection from creditor actions (often referred to as ‘breathing space’!).
If you have any clients who may benefit from a discussion regarding rescue procedures, please do not hesitate to give one of us a call, or drop us an email. We continue to offer free, initial, no obligation meetings/consultations with clients who may need our help – even if nothing comes of it, they may as well take advantage of this free service!
With kind regards from Antony Antorkas, Nick Cusack, David Perkins and all of the Parker Andrews Team