A business is classified as insolvent if it is either unable to pay its debts as and when they fall due for payment (Cash flow Test) or if it has more liabilities than assets (Balance Sheet Test).

As a director of a company, it is your responsibility to take immediate action if think you the business is heading into trouble. All directors have a statutory and fiduciary duty to creditors to minimise any potential loss to all of your creditors and shareholders. Contact us as soon as possible to find out what your options are. DO NOT bury your head in the sand, the sooner you seek advice, the better the outcome may be.

• Any creditor
• The holder of a Qualifying Floating Charge (or QFC), such as the Bank
• The company itself
• The directors
• The Secretary of State

For creditors, they must be owed more than £750 in order to do this.

An insolvency process in which an administrator is appointed to take control of the affairs of an insolvent company.

The objectives of the administration are to either;

1. Rescue the company as a going concern, or
2. Achieve a better result for the company’s creditors as a whole than would be likely if the company were wound up (without first being in administration), or
3. Realise property in order to make a distribution to one or more secured or preferential creditors.

For more information about administration, visit our administration page.

Pre pack administration is when a buyer for the company is found prior to the business being placed in administration. The purpose of pre-pack administration is to guarantee that trade continues by moving contracts and employees to the purchasing company. In many cases, this is considered to be the best way to save the business as a going concern.

Yes, existing management team/directors are usually best placed to acquire the business as they are able to move smoothly through the due diligence process.

An agreement proposed by a company to its creditors, whereby the creditors are offered a sum in repayment of their debt.

The proposal is drafted to detail the exact terms on which repayment is made and will state how long the CVA will be in force, what happens if the terms are not adhered to and how the money to pay the creditors will be raised.

The creditors are entitled to vote upon the proposal and if the relevant threshold is met, the CVA is approved and creditors are bound by its terms.

The company continues to trade during the course of the CVA under the control of the directors.

For more information about a CVA, visit our company voluntary agreement page.

Liquidation is a formal insolvency procedure which brings the company to an end. There are three forms of liquidation:

1. Creditors voluntary liquidation (CVL) is a formal insolvency procedure where the directors of an insolvent company have decided that their business is no longer viable and wish to wind the company up. For more information about a CVL, visit our creditors voluntary liquidation page.
2. A members’ voluntary liquidation (MVL) is a process whereby the director(s) swear a declaration of solvency stating that the company will pay all of its liabilities within a period of not more than 12 months. In this process, the shareholders will appoint a liquidator under special resolution to realise the assets of the business, in order to distribute the proceeds to the company’s members. For more information about a MVL, visit our members’ voluntary liquidation page.
3. A compulsory liquidation is a formal insolvency procedure whereby a company is forced to close. This process can be instigated by various parties who may issue a petition. The majority of winding up petitions are presented by creditor(s) of a limited company who have not been paid monies owed to them.

The key to anything like this is to act fast! If you have received a winding up petition, you only have 7 days to respond to the petition after which the petition may be advertised in the London Gazette. Get in contact with our team ASAP to see how we can help you.

The term ‘freezing order’ or ‘freezing injunction’ (formerly called a Mareva injunction) applies to a court order that is taken out with the sole purpose of stopping a party from dealing with their assets until otherwise instructed.

This type of order is usually made when a business enters proceedings related to debts and liquidation and a creditor believes that the business may dispose of its assets, before a judgement can be enforced.

You are not automatically disqualified if your company has gone into liquidation. However, following the closure of the business, the Official Receiver / Insolvency Practitioner appointed as Liquidator will begin to investigate the conduct of all of the directors (both past and present directors). The Liqudator is obliged to investigate into the historical trade of the business including but not limited to looking into any fraudulent activity taking place and considering whether the directors knew or ought to have concluded that the company was likely to become insolvent. If it is decided that the directors acted unlawfully, they could be held personally responsible for the company’s debts and face disqualification (plus criminal or public prosecution).

• Illegal trading (trading while insolvent)
• Not following the rules of the Companies Act
• Failure to comply with competition law

(Note the above are merely an outline of the reasons under which a past or present director of a company may be disqualified and/ or liable to prosecution).

Insolvency practitioners are experienced professionals who are qualified and regulated to help financially distressed individuals and businesses.

This person will hold a license, will be insured by way of a bond and will be authorised by a regulatory body such as the Insolvency Practitioners Association (“IPA”).