For a company going into administration can end in a number of different ways which include liquidation of the company, a company voluntary arrangement (CVA), or ideally, a return to normal business with company turnaround measures in place. This article will explore what each of those means, and how that might impact an insolvent company.
Administration to Liquidation
Once an administration is in place, a licensed insolvency practitioner will be running the company in lieu of the directors. His/her primary responsibility is to the creditors so his first job will be to investigate deeply the company financial affairs and propose a course of action. If he concludes that the likely best return for creditors is the immediate liquidation of all company assets, then he will place the company in liquidation. He may even present a winding up petition to the court on behalf of the company along with an application for his appointment. In these scenarios, it is customary for the court to appoint the company liquidator. He will then have a duty to cooperate with the official receiver so that the business can be efficiently wound up.
Administration to CVA
In some cases, a company voluntary arrangement will have been a goal from the start but there was a necessary interim measure to stave off aggressive creditor actions. Building a CVA proposal can take a few weeks so, especially where creditors have already issued either a distraint order or a winding up petition, this offers a breathing space to prepare a viable CVA scheme. CVA bears similarities to administration in that it offers at least a temporary protection from creditors and HMRC, but more importantly, it also offers the possibility for company survival. By centralising all of your creditor debts into one single payment, and reassuring creditors that a well-considered solution is in play, businesses can regroup and begin to repay their debt in a reliable manner. Importantly for directors, they stay in control of the business throughout the procedure.
One of the real benefits of an insolvency process is its ability to give companies time to rethink core business processes and hopefully emerge far stronger from the experience. Especially in the case of large corporations, or businesses in the public eye such as football clubs, the publicity often brings the possibility of new investment. Although there may not specifically be a restructure of the business, they have experienced business troubleshooters and as such their temporary fulfilment of directors’ duties will go hand-in-hand with a clinical investigation of how the company has been operating. Companies rarely come out unscathed, in the sense that it may be felt necessary to dispense with certain business assets to bring the company back from a state of insolvency, but nevertheless they have the possibility to survive and return to profitability.
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