When a company reaches a stage where formal insolvency procedures must be put in place, an insolvency practitioner’s primary objective is to maximise the return for the company’s creditors. This is generally best achieved by keeping the company trading whereby the business can continue to operate and generate cash for the creditors or it can be sold as a going concern.
A number of procedures are available to enable the continuation of a company’s business:-
In an administration, the company will be placed under the day-to-day control and management of an administrator. The company is protected from creditors who cannot disturb the business or recover any assets without the permission of the Court.
The administration may be followed by the rehabilitation of the company and its return to the control of its directors, a Company Voluntary Arrangement or Liquidation. This procedure is designed to hold a business together while plans are formulated to rescue the business, maximise asset realisations or put forward alternative procedures.
If a company breaches the terms of its borrowing from a creditor with a floating charge, that creditor is entitled to appoint an Administrative Receiver to recover its debts. The Receiver takes control of the company’s assets so that they can be realised primarily for the benefit of the security holder – any surplus assets left after completion of the receivership are returned to the company.
Company Voluntary Arrangements (CVA)
A CVA is a procedure whereby a plan of reorganisation takes place, which may involve delayed or reduced payments of debt, capital restructuring or an orderly disposal of assets. There is limited involvement by the court and the scheme is under the control of a Licensed Insolvency Practitioner acting as a Supervisor.