There are a variety of strategies that can be employed to try to resolve an insolvency situation. These include:
Informal Creditors Arrangement
A company may begin by being honest with creditors about their situation and can then attempt to negotiate an Informal Creditors Arrangement. This involves negotiating a realistic repayment schedule with creditors, with the aim of lowering monthly payments and removing the risk of legal action.
Company Voluntary Arrangement (CVA)
If the creditors are numerous, debt levels are high and the company relationship with them is becoming strained, then a Company Voluntary Arrangement (CVA) may be appropriate.
A CVA is a legally binding payment plan that an indebted company and its creditors enter into to lower the company’s monthly repayments. A CVA has to be approved by at least 75% (by value) of creditors.
Once a company has entered administration, a moratorium is granted that halts any legal actions being taken by its creditors. It offers an opportunity to rescue a company before it enters liquidation. After administration, a company may be sold, restructured and allowed to trade under the current owners, or may enter an alternative process such as a CVA or liquidation.
If the company cannot be rescued then placing the company into liquidation could be the best option. The process can be initiated by company directors using a Creditors’ Voluntary Liquidation (CVL). All of the company’s assets will be identified, valued and then sold with the proceeds distributed to creditors. The company will then be removed from the register held at Companies House and cease to exist as a legal entity.