Insolvency
Particularly in the current economic climate, companies and individuals alike are more frequently finding themselves in financial difficulty. We have extensive experience in corporate and individual insolvency and have advised insolvency practitioners, creditors, landlords, tenants and insolvent parties on a variety of insolvency matters including the following.
Administration
The main purpose of an administration is to preserve the company as a going concern with a view to increasing the monies recovered by creditors than would otherwise be the case if the company was wound up.
The administrator will attempt to do this using various methods including realising available property to try and raise money to pay creditors. Once a company is in administration, no creditor with a fixed or floating charge can enforce their security without first obtaining the consent of the administrator or alternatively, the permission of the Court. Furthermore, a statutory moratorium will also apply with the effect of preventing creditors from taking any legal action against the company.
Company Voluntary Arrangement ('CVA')
A CVA is used by a company to enable it to reach an agreement with its outstanding creditors in respect of its debts. It is intended to be used as an alternative to liquidation and can be significantly cheaper than administration. With the exception of preferential creditors and secured creditors who disagree with the terms of the CVA, the CVA will bind all remaining creditors.
Individual Voluntary Arrangement ('IVA')
An IVA is similar to a CVA but it is used by an insolvent individual rather than a company to reach an agreement with his creditors in respect of outstanding debts. An individual who is insolvent may approach creditors and propose an IVA or alternatively, an individual may apply to the Court to help prevent creditors taking any enforcement action in respect of any outstanding debts until an IVA proposal can be agreed. As with the CVA, once the IVA comes into effect, it is binding against creditors.
Compulsory Liquidation
The object of liquidation is to realise all the assets of a company and to attempt to make a distribution to all outstanding creditors in the manner which is prescribed by insolvency legislation. Once a Winding Up Petition has been presented to the Court, the company cannot deal with its property. A liquidator will be appointed to complete the liquidation. The liquidator effectively steps into the shoes of the director and is given wide powers to enable him to realise as many of the company's assets as possible. Furthermore, the liquidator can disclaim onerous contacts such as a long term lease.
Voluntary Liquidation
This form of liquidation is used by shareholders of a solvent company. In order to liquidate a company voluntarily, the directors of the company must give a statutory declaration as to the company's solvency. The effect of voluntary liquidation is the same as compulsory liquidation, i.e. on completion of the process the company will cease to exist. The liquidator assumes the same powers as a liquidator in a compulsory liquidation.
Bankruptcy
Bankruptcy relates to insolvent individuals and is similar to company liquidations. Bankruptcy proceedings are commenced through the Court and can be commenced by the insolvent individual or a creditor who has sufficient standing. Once an individual has been made bankrupt, he will be severely restricted in his ability to obtain credit and to trade or act as a company director. Bankruptcy against an individual lasts for approximately a year.
