Augusta Kent - Business Rescue Insolvency Procedures

Informal Arrangements

The first port of call when considering regaining control and depressurising your company’s financial situation. This is where you come to an informal agreement with specific creditors over outstanding debts owed to them. This could take the form of rescheduling payments over an agreed period of time – perhaps longer than the creditor would ideally prefer, but this way you can afford them and they get paid.

The disadvantage to an informal agreement is that it’s not legally binding. The creditor can change his mind and withdraw from it at any time, commencing formal proceedings against your business to recoup the debt. Also, whilst you are undergoing the terms of this agreement, it does not prevent other creditors seeking recompense for monies owed.

The advantage is where the business has a key supplier who, through the informal arrangement, can see direct benefit from taking part since they are being consulted at an early stage: for example, they get paid (eventually) in full – whereas with a formal voluntary arrangement this is not always the case.

At Augusta Kent, we have extensive experience in advising clients throughout these negotiations. We will be able to assist, where required, in developing solutions along this route, if it is an appropriate solution that best meets your interests in the short and long term. Contact us for your free initial consultation today.

Company Voluntary Arrangements (CVA)

A useful insolvency procedure for viable companies who have found themselves in short term financial difficulties and need breathing space. It enables the directors to reach a constructive agreement with all creditors, whereby a percentage of debts owed to them are usually repaid over time – either through the sale of company assets or from future income – allowing the company to continue to trade.

The amount that is repaid eventually will depend upon what the business can afford, coupled with what the creditors will agree to. A minimum of 75% of creditors (in value) must agree to the arrangement, therefore the higher the offer the greater the likelihood of it being accepted. In most cases, on completion of the arrangement, there will be outstanding monies owed that will be written off by the creditors.

This constructive solution enables the company to move forward as a viable business, continuing to trade with creditors who may themselves be compromised if the company ceased to trade.

Voluntary arrangements are supervised by a licensed insolvency practitioner who is nominated in the first instance by the company, followed by ratification from the affected creditors.

Administration

A rescue procedure that protects a company and its assets from any action taken by its creditors, giving the company time for a reorganisation or realisation of assets to be undertaken.

An administrator (who is always a licensed insolvency practitioner) can be appointed by the directors of the company, a secured creditor or by the court and immediately takes control of the company with the aim to either save it as a going concern or to achieve a better result than through the route of liquidation.

This could mean continuing to trade the company (if sufficient working capital exists) whilst the business is marketed for sale, or an immediate sale to an interested party.

The Administration can last initially for twelve months, whilst the business or protected assets are marketed and sold, in the short term. The company will usually then proceed into a company voluntary arrangement (CVA) or a liquidation if funds are available to unsecured creditors. If not, then the company can move straight to dissolution by Registrar of Companies.

Administration as a procedure is quick to initiate and, where sufficient assets are available to warrant protection, is usually a viable alternative to liquidation.

Receivership

This procedure is used by creditors who hold security over assets of a company. It enables them to regain the value of the debt owed.

It falls into two categories: fixed-charge receivership and administrative receivership. Both involve the appointment of a licensed insolvency practitioner by a secured creditor (usually a bank).

A fixed-charge receiver is only appointed over the asset that the charge relates to, for example a mortgaged property - where the receiver only sells the mortgaged property to repay the bank. The directors remain responsible at all times for the company’s affairs and its business.

An administrative receiver is appointed under a floating charge, where he can sell assets caught by both the fixed and floating charges of a debenture (to extend our example, with a mortgage, this would not only related to the mortgaged property but company stock, book debts, etc). The administrative receiver therefore becomes responsible for the company’s affairs as a whole but his primary duty remains to repay the bank.

Although unsecured creditors must be notified the appointment of an administrative receiver, he does not agree or handle the repayment of their debts. Where residual funds are available, a liquidator will be appointed to do this.

The information presented is for information purposes only. The information is not, and is not intended to, amount to professional advice and should not be applied to specific circumstances. No responsibility for its accurateness and correctness, or for any consequences of relying on it, is assumed by Augusta Kent Limited. We strongly advise that you contact us or any other licensed insolvency practitioner for specific, personal advice.