All too often, directors face difficult choices, such as whether to further invest money in to a financially distressed business or perhaps call it a day. Just the decision to continue trading can be a difficult one, especially where there remains a risk of becoming personally liable for continuing to offer services and acquiring goods on credit. Often, once it is realised that the business cannot continue, it is too late to avoid personal liability and sanctions. Where the decision is not clear cut, it is vital that a director takes professional advice to minimise the risk of future personal liability.
Remember, it is still possible to save a business even where it is not possible to save a company. Even if saving a business is not possible, CMB Partners can ensure that the recovery of assets is maximised and, where possible, dividends paid to creditors.
Companies often face short and long term financial difficulties. At CMB Partners, our diverse experience can provide directors and/or appointing creditors with the best advice to suit any situation. This ensures that the correct approach is taken to maximise the likelihood of a company or business being saved.
CMB Partners provides a full range of company services, which include the following:
- This is a corporate insolvency procedure where the directors, the company, the creditors or the Court can appoint an insolvency practitioner as Administrator. The procedure is designed to either rescue the company or to realise its assets in a way that is likely to result in a better result for all creditors or allow a distribution to preferential or secured creditors.
- Upon appointment, the administrator takes executive control over the company, its assets and its business operations. While doing this, he formulates a plan of action to be proposed to creditors for how the purposes of the administration will be achieved.
- In some ways, this procedure and terminal insolvency proceedings such as voluntary liquidation, are very similar. However, key differences include the speed at which an appointment takes effect, the statutory moratorium which protects assets by preventing certain enforcement actions and also, in certain circumstances, the ability to sell the business and assets of the Company as a going concern. This could potentially save jobs, preserve the value of company assets and ensure a better result for creditors.
Creditors’ Voluntary Liquidations
- A creditors’ voluntary liquation (“CVL”) is a corporate insolvency process which allows the directors (with shareholder consent) to wind down an insolvent company on a voluntary basis. It is commonplace for this procedure to be used when the directors recognise that the company cannot continue to trade, no further funding can be found or appropriate rescue procedure available.
- By taking positive action in a timely manner, the directors would be adhering to their fiduciary and statutory duties. Therefore, the use of the CVL procedure following the onset of insolvency can be seen as an honourable “hands up” action, enabling a director to act on his own accord rather than succumbing to predatory action by a creditor. Acting expeditiously, could avoid charges of misconduct often levied against an intransigent director.
- A company is placed into CVL following a meeting of the shareholders prompted by the board of directors. Following, the passing of the resolution to liquidate, the liquidator then takes control of the company, realises assets, deals with statutory reporting, carries out his investigations, pays costs of the liquidation and if there are sufficient funds, will distribute these to the amongst the creditors before finalising the liquidation (after which the company is dissolved).
Members’ Voluntary Liquidations
- This procedure can be used when the shareholders of a solvent company want an orderly close down of the company. The procedure is often used when the company no longer has a purpose or the director/shareholder is about to retire. It is particularly popular due to the generous tax benefits available to shareholders which are not available under the ‘striking-off’ regime.
- Following appointment the liquidator usually realises any assets, pays any debts, deals with the company’s tax issues, distributes the residual funds to the shareholders and files reports at Companies House. CMB Partners will try and ensure the earliest distribution of funds to shareholders. Following the filing of the liquidator’s final account, the company is dissolved.
Company Voluntary Arrangements
- A company voluntary arrangement (“CVA”) can be used by companies in distressed situations to avoid formal insolvency. A CVA is a statutory contract between a company and its creditors which usually involves a form of debt composition. Creditors vote on whether to accept proposals for payment in settlement of the monies owed to them (which could be a single payment or instalments over a period of time). If the required majority of creditors are in favour of a CVA proposal, then all creditors will be bound by it.
- The advantage for the company, is it can continue to trade unfettered by creditor pressures and without any need for a potentially damaging liquidation process. For the creditors, it means a greater return then would be achieved through a liquidation.
- This is a court-based corporate insolvency procedure where the company is “forced” into liquidation, as a result of a petition from a creditor. The court is usually petitioned by a creditor (although this can also be done by company itself or the Secretary of State) and if certain criteria is met (such as it being shown that the company cannot pay its debts as they fall due), then the Court will make an order for the winding-up of the company.
- The early stages of a compulsory liquidation will be handled by the government’s Official Receiver’s office who will interview company officers and carry out an investigation into their conduct. The Official Receiver may later pass the liquidation to an external insolvency practitioner, depending on the nature of the case and the desires of the company’s creditors. Irrespective of who deals with the case, it essentially involves the realisation of company assets, statutory reporting, payment of liquidation costs, adjudication and then payment of creditor claims and eventual dissolution of the company.
- Turnaround is a process dedicated to corporate renewal when firms are on the brink of failure. It uses different types of analysis to determine a company’s failings (such as management review and also root cause and SWOT analysis). This is followed by the development of strategic and restructuring plans designed to restore performance and profitability.
- The techniques typically needed for turnaround include retrenchment, repositioning, replacement and renewal. Advice on these techniques, in addition to working closely with contacts in corporate finance and professional services firms will ensure access to a full range of services required for the turnaround process.
Fixed Charge Receiverships (including Law of Property Act Receiverships)
- As the name suggests, the holder of a fixed charge security (such as a mortgage) can appoint a receiver when the terms of borrowing have been breached. This can be a swift and cost effective way for a lender to secure control over an asset. In the case of a Law of Property Act receiver, the insolvency practitioner need not be a qualified. However, the experience and knowledge of a licensed insolvency practitioner is often a key to maximising the return to the charge holder.
- An administrative receivership appointment can be made when a company has breached the terms of a loan or other credit facility from a creditor with a floating charge (usually a bank or other financial institution). The main function of an administrative receiver would be to utilise his or her extensive powers over the charged assets to recover sufficient funds to pay the costs of the receivership, preferential creditors (certain employee claims) and the charge holder.
- Although once customarily used by lenders and other charge holders, these appointments are now quite rare as they can only be made if the floating charge existed prior to 15 September 2003. A creditor with a more recent charge has the preferable option of placing the company into administration.