If your company is insolvent, or you are facing intense creditor pressure, you may be considering your options.
The first part of the insolvency process is recognising that your business is insolvent and no longer financially viable. You may reach this decision yourself or with the assistance of your accountant or an Insolvency Practitioner. You may also find our Insolvency test helpful.
The next informal insolvency process will be to cease trading. After that, the question is whether the company must be liquidated (is unsaveable) or there is some hope for the company to continue via administration or a creditors voluntary arrangement (cva).
Different Types of Insolvency Process
There are several different liquidation processes. Whilst they are all similar, the formal insolvency process that ends in your company no longer legally existing will depend on whether you voluntarily liquidate your company or whether ultimately it is compulsorily wound up by a creditor.
All insolvency processes require the appointment of a fully licensed and regulated insolvency practitioner. As soon as the IP is formally appointed, the directors of the company no longer have any legal rights or duties other than to co-operate with the IP.
The different types of Insolvency process are summarised below.
Companies can either choose a voluntary liquidation process, or have compulsory liquidation forced upon them.
Compulsory liquidation, where creditirs start winding up proceedings, includes more processes before a liquidator is appointed.
With all forms of liquidation, an insolvency practitioner assumes control of the company and sells (‘liquidates’) assets to maximise the returns for creditors.
The insolvency practitioners fees are generally taken from the assets sale proceeds.
How Long Does the Liquidation Process Take?
A company can enter liquidation in a matter of a few weeks, but the overall time frame will depend on the size of the company, and how much work is involved for the liquidator to realise the assets. On average, it can take between 3 months to 1 year.
Generally only appropriate, if at all, for larger companies which have a solid underlying business with significant assets, a company that goes into administration gets protection from legal action whilst an insolvency practitioner assesses the business situation. Administration commonly involves restructuring and employee layoffs as the administrator establishes if the company remains viable. Successful administrations can end with the business re-entering profitability and living to fight another day. On other occasions, the administration becomes a liquidation and the company is closed.
How Long Does The Administration Process Take?
Going into Administration can take a few weeks, and the entire process is rarely longer than a year.
Company Voluntary Arrangement Process
This rescue mechanism involves a structured repayment plan for creditors, and must be voted into agreement. It must be arranged by an insolvency practitioner and only then if it is deemed the company can potentially return to profitability. Read our detailed guide to Company Voluntary Arrangments here.
How Long Does A Compulsory Voluntary Arrangment Take?
The process of putting together a CVA proposal usually takes around a month, after which the creditors need to vote in order for it to become legally binding, which takes up to four weeks.