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Avoiding liquidation

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Depending on the specific circumstances, it may be possible, and is always worth considering, whether the company can avoid insolvency altogether by a series of negotiations, discussions and voluntary arrangements with all of the company’s creditors

When (why) would a company need this service?

If a company is under pressure from creditors to make payment of the sums due to them, but are unable to satisfy those debts, the company may be considered to be insolvent and could be subject to liquidation.

It may be possible for the company to reach an alternative arrangement with all of its creditors in order to avoid Liquidation or Administration with a view to trading through a particularly difficult period. These options include:

  • Informal Agreements
  • Company Voluntary Arrangements

We will review each of these here.

Informal Agreements

Though the term ‘informal’ is used, the terms of such agreements would be clearly agreed and evidenced in writing.  The reference to the agreement being ‘informal’ is to the fact that it is not a Company Voluntary Arrangement (a CVA) within the meaning of the insolvency legislation (as discussed below). 

So whilst such agreements do not have the same level of protection as a CVA, if a struggling company acts swiftly and engages in negotiations early, they can be just as effective at helping a company to avoid action by creditors.

Pros:

  • Terms can be bespoke;
  • Facilitates and encourages ongoing business relationships and trading;
  • Can be less costly than formal insolvency procedures; and
  • Not publically known and therefore no/limited reputational damage to the company.

Cons:

  • Will only bind creditors who are party to the agreement;
  • Will not automatically bind all unknown, unsecured creditors;
  • Any creditors who are not a party to the agreement can proceed with insolvency proceedings against the company; and
  • Will not prevent a creditor from deviating from the agreement and commencing insolvency proceedings (though the existence of such an agreement may persuade the court to adjourn and/or dismiss such proceedings).

Company Voluntary Arrangements (CVAs)

A CVA is similar to the above, in that it is a written agreement between the company and all of its unsecured creditors, that the company will make either a lump sum payment or regular payments (or a mix of both) into a ‘pool’ from which the Supervisor of the CVA (a licenced insolvency practitioner), then distributes to the known creditors on an equal, sharing basis.

Whilst it is a formal insolvency procedure, it can often be a cheaper alternative for the company than Liquidation or Administration. Moreover, its primary objective is to prevent Liquidation by helping companies which have a good underlying business but which have otherwise hit a cash-flow problem.

The outline of the process is as follows:

  • Written proposals of the directors, often with the assistance of the nominated insolvency practitioner (the Nominee), are put to the creditors;
  • The Nominee files his/her report to the court on the viability of the proposals;
  • The creditors are required to vote on the proposals whether they:
    • Agree to the proposals;
    • Agree but request modifications to the proposals; or,
    • Object to the proposals.
  • For the proposals to pass and bind all creditors, 75% or more in value of the unsecured creditors’ agreement is required;
  • In the event the proposals are approved, then all creditors, save for ‘secured’ creditors and ‘preferential’ creditors who did not agree, are bound;
  • The Nominee becomes the Supervisor and oversees the implementation of the CVA and adherence to it by the company and directors;
  • At the end of the term, usually 60 months, the Supervisor will submit a final report.

Pros:

  • Potential to rescue a company during a difficult financial period;
  • Cheaper alternative to Administration;
  • Small companies may benefit from a period of protection from action by unsecured creditors (called a ‘moratorium’);
  • Allows the directors to continue to run the company; and
  • Creditors are likely to recover a higher percentage of the debt owed than if Liquidation or Administration were commenced.

Cons:

  • Potentially at the mercy of a majority creditor;
  • Larger companies may not benefit from a moratorium and so will need to act more quickly to have a CVA approved before a creditor takes action (although the court may agree to postpone such action pending approval – but such would increase costs); and
  • No guarantee that Liquidation or Administration will be avoided.

There are various alternatives to Liquidation and Administration which may be available to a struggling company and we would be happy to discuss these with you. Alternatively, if you are a creditor who has been presented with a CVA proposal, or other re-payment plan and wish to consider your options, please do not hesitate to contact us, our solicitors would be more than happy to speak with you. Please visit our ‘contact us’ page for further details. 

What should a company do before calling?

In order for our specialist lawyers to assist you, please let us have the following information:

  • The names of all of your creditors;
  • Details as to whether they are secured or unsecured creditors;
  • The amounts owed to each creditor;
  • Details and the nature of your relationship with each creditor;
  • Details of any debtors you may have who are likely to make payment in the near future; and
  • A recent set of company accounts, including profit & loss accounts, and balance sheets.

Is it expensive? What are the likely costs?

We will provide you with an estimate of costs at the outset based on the type of work required.

Our lawyers have extensive experience in advising clients who are faced with the possibility of Liquidation. We will be able to provide you with bespoke and cost effective advice tailored to your circumstances.

Meet the Avoiding liquidation team
Ray Crudgington
Managing Partner
greenwich
02083054224
ray.crudgington@grantsaw.co.uk
Maria Lati
Partner
Head of Residential Property
blackheath
02083054229
maria.lati@grantsaw.co.uk
Mike Clary
Partner
Head of Family
greenwich
02083054237
mike.clary@grantsaw.co.uk
Kalpa Prajapati
Partner
Head of Private Client
blackheath
02083053536
kalpa.prajapati@grantsaw.co.uk
Mario Savvides
Partner
Head of Commercial Property
greenwich
02083053531
mario.savvides@grantsaw.co.uk
Sarah-Kate Jackson
Partner
Head of Litigation
greenwich
02083054236
sarah-kate.jackson@grantsaw.co.uk
Adina-Leigh Collins
Litigation
Solicitor
greenwich
02083053556
adina-leigh.collins@grantsaw.co.uk
Aimal Gram
Commercial Property
Solicitor
greenwich
02083053524
aimal.gram@grantsaw.co.uk
Aisha Mohammed
Residential Property
Solicitor
greenwich
02083054228
aisha.mohammed@grantsaw.co.uk
Aishat Balogun
Aishat Balogun
Family
Solicitor
greenwich
02083054214
aishat.balogun@grantsaw.co.uk
An Le Tran
Commercial Property
Professional Support Solicitor
greenwich
02083054226
anle.tran@grantsaw.co.uk
Angus Young
Litigation
Solicitor
greenwich
02083054225
angus.young@grantsaw.co.uk
Atifha Aftab
Atifha Aftab
Family
Solicitor
greenwich
02083054238
atifha.aftab@grantsaw.co.uk
Bimal Kotecha
Litigation
Solicitor
greenwich
02083053523
bimal.kotecha@grantsaw.co.uk
Charlotte Mandy
Charlotte Warren
Private Client
Solicitor
blackheath
02083054231
charlotte.warren@grantsaw.co.uk
Claire Mac Mahon
Litigation
Solicitor
greenwich
02083053537
claire.macmahon@grantsaw.co.uk
Deborah Taite
Residential Property
Solicitor
blackheath
02083053542
deborah.taite@grantsaw.co.uk
Emily Pearce
Residential Property
Solicitor
greenwich
02083053526
emily.pearce@grantsaw.co.uk
Georgia Beales
Litigation
Paralegal
greenwich
02083054206
georgia.beales@grantsaw.co.uk
James McKimm
James McKimm
Corporate and Commercial
Solicitor
greenwich
02083054217
james.mckimm@grantsaw.co.uk
Jeremy Brooks
Jeremy Brooks
Private Client
Solicitor
blackheath
02083053534
jeremy.brooks@grantsaw.co.uk
Joanna Godden
Notary Public
Notary
greenwich
02083083535
joanna.godden@grantsaw.co.uk
Kim Whitaker
Kim Whitaker
Corporate and Commercial
Head of Corporate and Commercial
greenwich
02083053539
kim.whitaker@grantsaw.co.uk
Laura Danquah
Compliance Manager
greenwich
02083054222
laura.danquah@grantsaw.co.uk
Lauren Smith
Employment and Family
Paralegal
greenwich
02083053543
lauren.smith@grantsaw.co.uk
Mandeep Clair
Family
Solicitor
greenwich
02083054235
mandeep.clair@grantsaw.co.uk
Michael Pope
Employment
Consultant Solicitor
greenwich
02083053540
michael.pope@grantsaw.co.uk
Michelle Pinnington
Michelle Pinnington
Residential Property
Solicitor
greenwich
02083054216
michelle.pinnington@grantsaw.co.uk
Noella Gooden
Employment
Solicitor (Australian qualified)
greenwich
02083053543
noella.gooden@grantsaw.co.uk
Raj Waghela
Raj Waghela
Residential Property
Solicitor
greenwich
02083053529
raj.waghela@grantsaw.co.uk
Randeep Thethy
Randeep Thethy
Residential Property
Solicitor
greenwich
02083054209
randeep.thethy@grantsaw.co.uk
Ruggero Pesciatini
Ruggero Pesciatini
Corporate and Commercial
Paralegal
greenwich
02083054220
ruggero.pesciatini@grantsaw.co.uk
Sarah Conner
Sarah Conner
Private Client
Solicitor
blackheath
02083054234
sarah.conner@grantsaw.co.uk
Simran Lalli
Simran Lalli
Employment
Solicitor
greenwich
02083054208
simran.lalli@grantsaw.co.uk
Susan Collins
Commercial Property
Solicitor
greenwich
02083054200
susan.collins@grantsaw.co.uk
Tatiana Zenina
Tatiana Zenina
Private Client
Solicitor
blackheath
02083054239
tatiana.zenina@grantsaw.co.uk
Trisha Djemal
Trisha Djemal
Residential Property
Consultant Solicitor
blackheath
02083053546
trisha.djemal@grantsaw.co.uk
Tyrone Grant
Residential Property
Head of Leasehold Enfranchisement
blackheath
02083053522
tyrone.grant@grantsaw.co.uk
Denise
Accounts Staff
greenwich
02088586971
enquiries@grantsaw.co.uk
Jayne Lye
Support Staff
Office Manager
greenwich
02083054204
jayne.lye@grantsaw.co.uk
Jamie
Support Staff
Head of IT
greenwich
02088586971
enquiries@grantsaw.co.uk
Kasia
Accounts Staff
greenwich
02088586971
enquiries@grantsaw.co.uk
Michael Tobin
Michael Tobin
Support Staff
Marketing and Business Development Manager
greenwich
02083053550
michael.tobin@grantsaw.co.uk
Sue Holness
Support Staff
Customer Services
greenwich
02083054221
sue.holness@grantsaw.co.uk