What is insolvency?
Insolvency arises when an individual or business has insufficient assets to pay their debts, or are unable to pay their debts when they fall due.
What procedures are available for an insolvent company?
There are six available procedures. The first four can be used to try and rescue the company and/or its business, the last two procedures are simply used to wind down the affairs of the company.
- Company Voluntary Arrangement (‘CVA’)
- Scheme of Arrangement
- Administrative Receivership
- Compulsory Liquidation
- Creditors’ Voluntary Liquidation (‘CVL’)
My company has substantial debts which it cannot afford to pay, what can I do?
We would recommend that you speak to one of our licensed insolvency practitioners who will be able to advise you on your options. There are always solutions to a problem and we are here to help. Take the first positive step today and contact us to arrange an initial meeting, which won’t cost you anything.
What are the obligations of a director if a company is insolvent?
Directors must take adequate steps to ensure that the company does not incur any further debts. Once a company is considered insolvent, the directors’ primary duty is to protect the interests of the company’s creditors. The company should cease making payments to all creditors and should continue paying ongoing insurance premiums. Directors should also take steps to secure, insure and protect the company’s assets
Can a director(s) buy the business and/or assets from an insolvent company?
A Liquidator/Administrator is under a duty to obtain the best available price for the company’s assets. He/she will usually obtain an independent valuation following their appointment. If a director puts forward the best offer then the assets can be sold to them or to their new company.
Are directors liable for the debts of an insolvent company?
As a general rule, directors are not personally liable for the debts of the company. This is the main reason why directors and shareholders incorporate limited companies, limiting their liability should the company be wound up. A company is a separate legal entity to its directors and shareholders. As such, a company can own its own assets and incur its own debts and liabilities. A Shareholder will only be liable to pay any unpaid share capital, which will usually be a nominal amount.
By incurring additional trading losses, directors can be exposed to personal liability for some or all of the company’s debts under actions of wrongful or fraudulent trading. Therefore, it is important that directors seek advice at the earliest opportunity when they become aware that their company is insolvent.
Directors will often sign personal guarantees, usually to banks, asset finance companies, landlords and certain trade creditors. If you have signed a guarantee, you will be liable for any shortfall the creditor suffers should the company enter a formal insolvency procedure, such as Liquidation or Administration. Where a guarantee has been signed by more than one guarantor, each of the guarantors will be jointly and severally liable. Directors that have signed guarantees can be motivated to continue trading an insolvent company in order to avoid personal liability, resulting in the company incurring greater losses and exposing all directors to claims of wrongful or fraudulent trading.
In the first instance, a director should ask the creditor to provide a copy of the guarantee. If the creditor is unable to produce a copy, they will not be able to enforce it. This is because a guarantee must be evidenced in writing under the Statute of Frauds 1677.
Can I be a new company director?
If a company goes into Liquidation/Administration you can continue to be a company director, unless you are subsequently disqualified or are made bankrupt.
My employees have outstanding wages, what will happen?
When a company enters a formal insolvency procedure, such as Liquidation or Administration, the Government will make certain payments, subject to statutory limits, to the company’s employees. Payments will include unpaid wages, statutory notice, redundancy pay and any accrued holiday pay.
Who can put a company into Liquidation?
The most common insolvency procedure is a Creditors’ Voluntary Liquidation (‘CVL’). This procedure is instigated by the directors of the company by calling a meeting of the company’s shareholders and creditors. As licensed insolvency practitioners, we can assist you in placing your insolvent company into CVL. At least 75% of the company’s shareholders are required to resolve to place the company into CVL.