There will be occasions when it is not possible to rescue a company or business without the use of one or more of the options provided by the Insolvency Act 1986.

Some of these procedures may be regarded as routes for saving the business, either within the existing corporate structure or via a sale to a new corporate entity.

We can advise on which of these procedures are appropriate, and by initiating a dialogue with the relevant stakeholders (i.e. secured lenders, creditors, employees, customers etc) can ensure a successful outcome.


The insolvency procedures are:

• Corporate Voluntary Arrangements (CVAs)
• Administrations
• Receiverships
• LPA receiverships
• Liquidations

Company Voluntary Arrangement
A Company Voluntary Arrangement (CVA) is a procedure which enables an insolvent company to reach an agreement with its creditors to delay or compromise the payment of its debts.

A CVA is highly flexible, and can be adapted to meet the needs of any business. In essence, a CVA will replace the terms of the company’s existing contracts with its creditors (e.g. to pay an invoice within 30 days) with new terms as set out in the CVA proposal. For example, the proposal might require the company to pay a fixed monthly sum into the arrangement for a period of 3 years so that creditors receive a minimum dividend of 75p in the £.

Creditors will usually agree to support such a CVA where it can be shown they will achieve a better outcome than if the company was liquidated and the business and assets sold.

For smaller companies, a moratorium is now available which allows the company a ‘breathing space’ in which to propose and implement a CVA without the threat of proceedings from creditors. For larger companies, protection from creditors may be obtained by use of the administration procedure.

Once we have identified that a CVA is appropriate (either with or without the need for protection from creditors), we can assist in the drafting of the proposal and in obtaining the support of creditors. We can also assist companies in obtaining new funding following the approval of the CVA.


Administration
The administration procedure provides an insolvent company with a period of protection during which time creditors may take no action against the company without leave of the Court. This ‘breathing space’ allows the administrator and the directors to take stock of the company’s position and formulate a strategy for the way forward.

Following the Enterprise Act 2002, it is now possible to appoint an administrator without the need for a Court Order. This makes the process of placing a company into administration far cheaper and simpler, and has led to an increased use of the administration procedure.

An administrator may now be appointed by the holder of a ‘qualifying floating charge’ as well as directors, shareholders or creditors.


The Enterprise Act introduced new purposes for an administration, and an administrator must now perform his functions with the objective of:

• Rescuing the company as a going concern.
• failing which,
• Achieving a better result for a company’s creditors as a whole, than would be likely if the company were wound up.
• failing which,
• Realising property in order to make a distribution to the company’s secured or preferential creditors.

These 'purposes' are listed in the order they must be considered by the administrator. For example, if the administrator believes it is not reasonably practicable to achieve the first purpose, the second purpose will apply, and so on.

The most usual outcomes for a company in administration are either the return to solvency via a company voluntary arrangement, or the sale of the company’s business and assets as a going concern.

Once a company enters administration, the management of the company is placed under the control of the administrator, although we would try use the expertise and experience of existing directors and staff when continuing to trade and in formulating the exit strategy.


Pre-packaged administration sale of business and assets
A pre-packaged sale of the business and assets as a going concern would be possible should a purchaser be identified in advance of administration. A sale contract would be agreed prior to the administration and would be completed by the administrators, immediately upon their appointment.

The administrators have a duty to maximise the return to creditors and would need to be satisfied that the pre-packaged sale represented the best, or indeed only, deal available to them. We are able to use our transaction support team to provide valuation advice. We are also able to provide assistance in finding sources of funding to facilitate such a transaction.


Sale of business and assets during Administration
Alternatively, an administration trading strategy could be adopted; this would centre upon marketing the business with a view to concluding a sale of the business and assets.

This strategy will often rely upon a party being identified who would be willing to fund the costs of administration during this period.

We can assist in certain circumstances in identifying such sources of finance.


Administrative Receivership
An administrative receiver may be appointed to a company by a lender holding a floating charge over the company’s assets. Following the appointment of receivers, the management of the company is placed under the control of the receivers, although we would try to use the expertise and experience of existing directors and staff when continuing to trade.

The usual result of an administrative receivership is the sale of the business as a going concern.

Subject to certain exceptions, administrative receivers may be appointed only under powers contained in debentures executed before 15 September 2003.


Law of Property Act (LPA) Receiverships
Law of Property Act Receivers act for banks and private lenders who have secured their loans by a Legal Charge (mortgage) on a property. Under the terms of the Legal Charge, the lender can appoint a Receiver to deal with a property when the terms of the mortgage are not being met – usually when repayments and interest are not being paid.


Why are LPA Receivers needed?
Lenders can face a number of circumstances in which they do not have the capacity, legal or physical, to deal with properties. Lenders may not wish to expose themselves to the liabilities that attend a corporate body taking possession of a property directly. LPA Receivers are experts who can manage the property, deal directly with occupants, outstanding problems, insurance and repairs. Receivers collect in money to repay the debt either from rents or by selling the property.


What happens in an LPA Receivership?
The role of the LPA Receiver is to focus on recovering the debt owed to the lender. This involves taking control of the property and, effectively, standing in the shoes of the owner. In most cases the task is then to arrange an early sale of the property in order to repay as much of the loan as possible. Lenders review each situation and often, commission a report on the appropriateness of Receivership. This may highlight issues not previously known to lenders which may affect how a property can be dealt with. Details of planning permissions and other licensing should be examined at this stage if at all possible. Factual occupancy arrangements are checked and, very often, the borrower is asked to contribute to see if there is a way that the loan can be repaid without further formal action. Once appointed, the LPA Receiver takes over the role of the owner and the owner may not deal with the property in any way. The Receiver has full discretion as to how to deal with the property. If obtaining planning permission or some other action can improve the realisable value, the Receiver may decide to pursue the opportunity but is not obliged to do so.


Liquidations
On occasion, when all other avenues have been exhausted, an insolvent liquidation may be the only appropriate way forward for a company. A liquidation involves the winding up of a company and the realisation of its assets for the benefit of creditors.

We have considerable experience in winding up companies, and have acted as liquidators of companies ranging from complex multinational groups to stand-alone owner managed businesses.

We will endeavour, wherever possible, to work alongside stakeholders to maximise the return to creditors.


There are two types of insolvent liquidation procedure:

Creditors’ Voluntary Liquidation
When the directors conclude that the company is insolvent and that there is no alternative to liquidation, they are able to convene meetings of the shareholders and creditors. The shareholders will resolve to place the company into liquidation, whilst the creditors (by majority) will have the final say as to who will act as liquidator.


Compulsory Liquidation
A creditor owed at least £750 may present a winding up petition to the Court, and if the debt remains unpaid at the date of the Court hearing, the Court may grant a winding up order in respect of the company.

We can assist stakeholders in every stage of the process to ensure that the process runs smoothly.