When a business does not have the cash to pay its outstanding debts, the owner or director can spend an increasing amount of their time dealing with creditors and, during this time, the business is at risk of court action and ultimately the threat of winding up proceedings.
We encourage owners and directors to take positive action before small problems become a disaster.
All too often a debt situation can spiral and become critical as owners and directors wait in hope for the situation to improve or procrastinate because the thought of taking professional advice is so worrying.
Carter Halliwell has considerable experience in advising directors on the options that are available to them to deal with a business that is experiencing financial difficulties.
We aim to take away that worry by providing a full explanation of both the benefits and drawbacks of the different solutions so that there are no unknowns or surprises.
We provide straightforward, unbiased advice and we will clearly outline your options so that you can make an informed decision on what is best for your business.
Our initial advice is provided free of charge, totally confidential and without any obligation to undertake any of the solutions that we advise.
Speak to one of our expert advisers today on 01925 877002.
Time to Pay Arrangements
We can negotiate with particular pressing creditors, including HM Revenue & Customs, to allow the company more time to make payment of the debt owed.
We have found that this can be more successful if a qualified third party has made an assessment of the company’s financial position and confirms that there is a willingness to deal with the debt.
We know it can be stressful and daunting for a director to confront situations like this but this is a normal part of our daily business.
Not dealing with the problem means that recovery proceedings by the creditor can escalate and could ultimately result in a winding up petition being issued and the company being placed into compulsory liquidation.
Company Voluntary Arrangements “CVA”
If your limited company is insolvent, it can use a CVA to make payments to creditors over a fixed period.
These payments do not have to fully repay the debts owed by the company and any debts remaining at the end of the fixed period will be written off.
We will calculate the amount that the company can afford to pay from its future income and then draft a Proposal for a CVA.
The Proposal will show the company’s present financial position, what would happen if the company was placed into liquidation and how more money will be available for creditors under the CVA.
The creditors will be invited to vote on whether to accept the Proposal for the CVA.
The company can then continue trading and the company will make the scheduled payments to creditors through our office.
An administrator can be appointed by the company or by its directors.
Other creditors must petition the court to appoint an administrator although a secured creditor holding a floating charge (created since 15 September 2003) can appoint an administrator without petitioning the court.
The company will be protected from legal action by its creditors and nobody can apply to wind up the company during the administration.
An administrator, who must be an authorised insolvency practitioner, will be appointed and, during the administration the directors must hand over control of the company and everything it owns to the administrator.
The administrator will write to the company’s creditors to say they have been appointed and has 8 weeks to write a statement explaining what they plan to do, which they must send to creditors and employees and invite them to approve or amend the plans at a meeting*.
The administrator could decide to:
- negotiate a CVA so the company can keep trading
- sell the business as a ‘going concern’ to another company; meaning that the business can continue by keeping its clients, workforce or orders
- sell the assets as part of a CVL, pay creditors from any money raised and close the company
- close your company if there’s nothing to sell
For as long as the company is in administration, the administrator has control over the business and can cancel or renegotiate any contracts or make employees redundant.
The administration will end when either:
- the administrator decides the purpose of administration has been achieved,
- the administrator’s contract ends – this happens automatically after one year, but it can be renewed
Creditors Voluntary Liquidation “CVL”
When a company cannot pay its debts, the directors may propose that the company stops trading and be placed into liquidation.
The directors convene a meeting of the company’s shareholders and ask them to vote and 75% (by value of shares) must agree to the winding-up to pass a ‘winding-up resolution’.
Once the resolution is made, an authorised insolvency practitioner must be nominated as Liquidator.
A meeting* with the company’s creditors must be held within 14 days of the winding-up resolution and, at this meeting*, the creditors can question a company director about the company’s failure and may suggest the appointment of an alternative liquidator.
You must present a statement of the company’s financial affairs at the meeting*, which gives details of the company’s assets and liabilities.
After the meeting*, and the creditors’ confirmation of the liquidator, the liquidator will take steps to realise the company’s assets, agree the claims or creditors and perform his other statutory duties.
Members Voluntary Liquidation
The directors may choose to put the company into Members’ Voluntary Liquidation if the company is ‘solvent’, which means that it has sufficient assets to pay all of its debts.
The majority of the directors must complete and sign a ‘Declaration of Solvency’ in front of a solicitor or ‘notary public’ and then convene a general meeting of shareholders to be held no more than 5 weeks later.
At this meeting the shareholders may pass a resolution for voluntary winding up and appoint an authorised insolvency practitioner as Liquidator who will take charge of winding up the company.
The Liquidator will take control of the company in order to realise assets, pay creditors and return any surplus money or unrealised assets to the shareholders.
If it subsequently transpires that the company will not be able to pay its debts in full, then the company may be placed into Creditors Voluntary Liquidation.
Although a director may apply to the court to ask for an order that the company be liquidated, it is more usual that a compulsory liquidation will happen following the presentation of a winding up petition by one of the company’s creditors.
To wind up a company, the creditor must be owed a minimum of £750 and be able to prove that the company is unable to pay the creditor, usually by evidence of an unsatisfied court judgment or the issue of a statutory demand.
In addition to paying their solicitors fees and disbursements, the creditor will also have to pay court fees of £280 and a deposit of £1,600 to manage the ‘winding-up’, which they may be able to get back if the company has sufficient assets.
The company may be represented at the court hearing and show reasons why a winding up order should not be made.
If the petition is successful, the court will issue a winding-up order and will appoint an Official Receiver to take charge of the liquidation.
The Official Receiver will start the process of turning the company’s assets into money that can be used to pay the company’s debts and will investigate the company’s affairs and the conduct of the directors.
The Official Receiver may appoint an authorised insolvency practitioner to be the liquidator instead and then the liquidator will realise the company’s assets and pay dividends to the creditors.
The company’s creditors may also request the appointment of an authorised insolvency practitioner, usually by requesting that the Official Receiver convenes a meeting* of the company’s creditors for this purpose.
* On 6th April 2017 ‘The Insolvency (England & Wales) Rules 2016’ come into force and this prescribes that creditor meetings will no longer be necessary unless there is a request for a meeting by sufficient creditors. Documents will be available to view online and the views of the creditors will preferably be sought by electronic means before a prescribed deadline.