What is Insolvency?
When a business or individual is unable to pay debts as and when they fall due and/or when liabilities exceed the value of assets, they are in law considered to be ‘Insolvent’.
What is Business Recovery?
If a business is experiencing financial difficulties, Bishop Fleming can act on a consultancy basis to review the situation and advise upon solutions that seek to rescue the business from financial disaster.
CVA (Company Voluntary Arrangement)
A formal insolvency procedure entered into by a Ltd Company or LLP to settle debts with creditors, often with the aim of continuing to trade. A CVA is promoted with the assistance of an Insolvency Practitioner, such as Bishop Fleming, who may be appointed as Supervisor by the creditors.
PVA (Partnership Voluntary Arrangement)
A formal insolvency procedure entered into by unincorporated Partnership to settle debts with creditors, often with the aim of continuing to trade. A PVA is promoted with the assistance of an Insolvency Practitioner, such as Bishop Fleming, who may be appointed as Supervisor by the creditors.
IVA (Individual Voluntary Arrangement)
In many cases, an IVA (Individual Voluntary Arrangement) is a suitable alternative to bankruptcy for individuals and sole traders. Unlike Bankruptcy, an IVA means that you may be able to retain some of your assets – such as your house or car – and be free of the restrictions associated with bankruptcy; which means you can still act as the Director of a company (for example).
A formal court procedure started by an individual, sole trader or creditors thereof (owed at least £750). Your assets are sold to pay your creditors (usually with the exception of your personal belongings), the contents of your home and tools of your trade unless they have a high value. Bankruptcy is dealt with by a Licensed Insolvency Practitioner or by a government official called the “Official Receiver”.
There are three types of liquidation – Compulsory Liquidation, Creditors Liquidation and Members Voluntary Liquidation and all refer to the close down of the company (also known as “winding up”). The differences are explained below:
A creditor may initiate a compulsory liquidation of a business such as a LTD company, LLP or Partnership by approaching the Court with a “winding up petition”. The Court will appoint a government official called the “Official receiver” to interview the directors or owners of the business. If the Official Receiver finds that the creditors grounds for compulsory liquidation are correct, the Official receiver will handle the liquidation. However, if the Official Receiver finds that there are enough assets in the business to pay a private Insolvency Practitioner, they will elect one to undertake the compulsory liquidation. The Insolvency Practitioner is bound by law to distribute any remaining funds amongst the creditors. If the majority creditor/s are unhappy with the Courts’ choice of Insolvency Practitioner, they have the right to elect an alternative of their choice.
CVL (Creditors Voluntary Liquidation)
When a LTD company or LLP is insolvent and the directors or owners decide that their business should be closed, they must voluntarily instruct an Insolvency Practitioner such as Bishop Fleming to administer the liquidation of the business. However, the majority creditors have the ultimate right to decide who acts as liquidator. When an Insolvency Practitioner is appointed, the Directors are relived of their duties but have a responsibility to cooperate with the appointed liquidator. A CVL is quick and often considered more a favourable route than a compulsory liquidation for obvious reasons.
MVL (Members Voluntary Liquidation)
If a LTD company or LLP is solvent, but the directors/owners wish to close the company, perhaps to release equity, they can undertake a Members Voluntary Arrangement by appointing an Insolvency Practitioner such as Bishop Fleming. The Insolvency Practitioner will administer the formalities to distribute funds in the most tax efficient way.
Administration starts with the appointment of an administrator to rescue a going concern that is experiencing financial difficulties to achieve a better result for creditors (than would be achieved through a liquidation), or, to realise the assets or property to benefit of the secured and/or preferential creditors. The Court, the debenture holder/s or the Directors can appoint an administrator.
For further information and advice about any of the procedures outlined above, contact your nearest Bishop Fleming office today.