These are the three most common processes facing companies who place their future in the hands of traditional insolvency practitioners:
Being in a state of insolvency means that a company can no longer afford to pay their obligations to creditors. This situation can arise for a number of reasons, including unforeseen economic circumstances (such as COVID-19), poor cash management, increased expenditure, and a reduced cash flow.
Liquidation usually occurs when a company has become insolvent and has been forced to wind down. To pay off any outstanding debts to their creditors, the remaining company assets are used. The assets are distributed based on the priority of the claims, which is usually as follows: secured creditors, then unsecured creditors, and then shareholders.
Going into administration means that a company has become insolvent and must be put into the hands of licensed insolvency practitioners, who will take over from the current directors and run the business. Once insolvency practitioners have been appointed, no legal action can be taken against the company by those who are owed money.
While in administration, the future of the company will be considered. The appointed insolvency practitioners will decide whether the company can be restructured to have a potentially successful future, or whether it is too far gone and must instead be liquidated.
How do I protect myself from insolvency, liquidation or administration?
Some of the most common alternatives are as follows:
• Informal Arrangement
This involves communicating with all of your creditors to see whether a mutually acceptable and beneficial agreement can be reached, involving a detailed payment plan.
• Company Voluntary Arrangement (CVA)
This is a more formal version of the arrangement described above, in which the company experiencing financial difficulties creates binding agreements with all of its creditors which detail how some, or all, of the debt will be paid back and over what length of time.
A CVA can be proposed by the directors (providing the company is not undergoing administration or liquidation) but not by creditors or shareholders. Before the directors make such a proposal, they can apply to court for a moratorium which would prevent creditors from taking any legal action against the company for up to 28 days.
How do I avoid company insolvency, liquidation or administration?
Corelco turnaround and rescue strategies are designed to leave insolvency and liquidation as an absolute last resort, and focus on protecting the business assets and restructuring the business for the future.
Corelco are not a licensed insolvency practice and our first instincts are to save a business wherever possible and restructure debt and assets in order to prepare a healthy new business for the future. If this cannot be achieved and insolvency becomes inevitable, we can support and advise the business owners as they go through the formal process.
Call Corelco on 0203 773 1417