Everything you want to know about insolvency and business recovery but were afraid to ask.

    • What are the benefits of a Members’ Voluntary Liquidation (MVL)?

      All distributions to shareholders in an MVL are treated as capital rather than income -shareholders can benefit from advantageous tax rates and reliefs;

      Pre-MVL tax and accounts can be prepared by your accountant to enable shareholders to gain maximum value;

      The new rules relating to the reduction of share capital impose similar requirements on the Company and its directors as an MVL and there will be associated cost implications;

      Non-cash assets can be distributed in an MVL in-specie;

      Early distributions of capital can be made prior to the liquidation being completed;

      In simple cases the costs of MVL are minimal;

      The Liquidator is responsible for identifying liabilities, ensuring these are paid and obtaining final tax clearance.

    • What is the difference between a creditors’ voluntary and a compulsory liquidation?

      A creditors’ voluntary liquidation,  is brought about by resolution of the Company through its directors and shareholders and is conducted by a qualified insolvency practitioner.

      A compulsory liquidation is brought about by an order of the court usually on a creditors’ petition and can be conducted by the Official Receiver or a qualified insolvency practitioner.

    • What is an IVA?

      An Individual Voluntary Arrangement (IVA) is an alternative to Bankruptcy. It is a contract between you and your creditors. The terms of your proposal to creditors may be flexible, but creditors will reasonably expect their prospects of recovering money to be at least as good as in a bankruptcy. Further, they will expect the proposal to contain sanctions (such as a right to bankrupt you) if you do not fulfil your part of the bargain.

      White Maund will help you with your proposal to creditors. Your proposal will be voted on by the creditors at a creditors meeting. If the proposal is accepted by over 75% (by value) of the creditors who vote then the proposal becomes legally binding on all creditors notified of the proposal. Once accepted, creditors have no alternative but to stop any further interest and charges accruing on the outstanding debts.

      Upon the successful completion of the IVA you will be considered debt free even though you may not have actually paid off all of your debts in full. You will then be free to make a fresh financial start. Call or email us to find out more.

    • What is personal debt?

      Debt is something you owe to another person. In financial terms, debt is when you owe money to a creditor or lender, in return for finance or goods you have obtained from them. Debt isn’t a problem if you can repay it but once in debt, many people experience financial problems or personal circumstances that cause them to fall deeper into debt.

    • How do I make myself bankrupt?

      First, you will need to complete the necessary forms, which you can print off from the Insolvency Service website at the following link: http://www.bis.gov.uk/insolvency/About-us/forms/england-and-wales

      The petition, form 6.27 – this form is your request to the court for you to be made bankrupt and includes the reasons for your request.

      The statement of affairs, form 6.28 – this form shows all your assets (anything that belongs to you that may be used to pay your debts) and all your debts. It includes the names and addresses of the creditors and the amount you owe each one.

      The form contains a Statement of Truth which you will need to complete.

    • Will I be disqualified as a director?

      You will not become disqualified just because your company is insolvent. Disqualification proceedings are only brought if warranted by the director’s conduct. You will only be disqualified if you do not meet your legal responsibilities and have demonstrated unfit conduct such as:

      • allowing a company to continue trading when it can’t pay its debts
      • not keeping proper company accounting records
      • not sending accounts and returns to Companies House
      • not paying tax owed by the company
      • using company money or assets for personal benefit

      Less than 10% of directors of insolvent companies are disqualified. Should you be disqualified the minimum disqualification period is 2 years and the maximum is 15 years, a disqualification prevents an individual from being a director of a company or being concerned in or taking part in the promotion, formation or management of a company.

    • Could HMRC’s preferential status impact on your proposed CVA?

      Company Voluntary Arrangements (CVA) have had a lot of column inches over the last few years as a result of a number of high profile retailers having to restructure and look to exit expensive high street leases.

      CVAs have also been available to smaller companies in most business sectors and can be a viable alternative to liquidation and the closure of your company.

      In the Budget 2018, the Government announced that it was proposing to bring back the preferential status for HMRC debt for VAT, PAYE (not employers’ NIC) and SC35 tax.  HMRC’s preferential status was withdrawn in 2003 and back then was limited to 6 months VAT and 12 months PAYE or other HMRC debts.  It is proposed to now be unlimited.

      This change could have a large impact on the security position of secured lenders as they will need to rely on the fixed charge for the bulk of their security.

      It is also likely to have a major impact on unsecured creditors in corporate insolvency such as CVA, Administration and liquidation.

      If unsecured creditors can see that the money they are expecting to get back from a CVA is reduced due to HMRC preferential status – will they continue to support a CVA Proposal? Bearing in mind that 75% of voting unsecured creditors need to vote to agree a CVA we expect it will become more difficult to get unsecured creditors to support a CVA.  They may well take the view that if there is no meaningful return for them, then why shouldn’t the company just close down and go into liquidation.

      Unfortunately, many companies have large debts with HMRC by the time they take advice on a CVA from a Licensed Insolvency Practitioner so in most cases there will be little or nothing for the unsecured creditors.

      The proposed changes are expected to come into law from April 2020 and therefore if directors are considering a CVA it may be best to act now.

      Taking early professional advice is the first step to identifying such issues ahead of time and getting the necessary processes in place to avoid a business incurring losses or encountering cash flow problems.  We offer a free consultation service so please call us on 01273-731144 or email at info@whitemaund.co.uk if you require independent professional advice.

    • Can I re-use my Company’s name?

      Except in certain circumstances, Section 216 of the Insolvency Act 1986 prohibits the re-use of a company name where a company has entered insolvent liquidation.  The section does not apply in any other insolvency process unless insolvent liquidation follows administration or a Company Voluntary Arrangement.

      Section 216 states that:

      • Any person that has been a director or shadow director in the 12 months preceding liquidation
      • Shall not in the period of 5 years following liquidation
      • be a director of a company that is known by a prohibited name
      • in any way be involved, whether directly or indirectly, in the promotion, formation or management of any such company
      • in any way, whether directly or indirectly, be concerned or take part in the carrying on of a business carried on (otherwise than by a company) under a prohibited name

      A prohibited name is defined in the Act as the name by which the liquidating company was known in the 12 months preceding liquidation or it is a name that is so similar to the name of the liquidating company that it suggests a connection.

      The Act goes on to include trading names/ styles within the definition of prohibited names and point (c) above applies to subsequent businesses that need not be a limited company.

      If a director acts in contravention to the law, the penalties can be serious.  A breach of Section 216 is a criminal offence punishable by imprisonment and/ or a fine.  In addition, a person acting in breach also makes themselves personally liable for the debts of the successor business.

      There are three exceptions to Section 216 as follows:

      • the person obtains a Court Order permitting that person to be a director of a company with a prohibited name or to carry on business with a prohibited name;
      • that the successor business has been trading for a period of at least 12 months prior to the liquidating company entering liquidation;
      • that the successor company acquires the whole or substantially the whole of the business from the insolvent company under arrangements made by the liquidator or a prior office holder (such as an administrator, administrative receiver or supervisor of a company voluntary arrangement).

      It should be noted in relation to exception 2, there has to be actual evidence of trading such as transactions flowing through the successor business’ bank account.  Directors should be very careful as we have seen instances where a director has fallen foul of the law due to there being insufficient evidence of trading or for example, where the successor company has filed dormant accounts within the 12 month period.

      In relation to exception 3, case law has made it clear that a person cannot be a director of the successor company with a prohibited name or involved in the formation, promotion or management of that company until after the successor company has purchased the whole or substantially the whole of the assets from the liquidator (or prior office holder).  Accordingly, there will usually be a break in trading which may have a negative impact for the business.  Directors should therefore consider whether an alternative process (such as a pre-pack administration) will preserve more value for the benefit of the company’s creditors.

      The director must also comply with certain rules regarding advertisement of his/ her intention to act as a director of a company with a prohibited name and ensure the creditors of the former company are made aware.

      Given the severe penalties for acting in breach of Section 216, we would always recommend taking early advice.   White Maund can guide directors through what can be quite a complicated process.

    • When is administration appropriate?

      Administration is an insolvency process that protects a limited company and it’s assets from any legal process.

      Where a company is coming under pressure from it’s creditors for non-payment of debts and creditors are threatening legal proceedings or a winding up petition, the company may need the protection administration brings to provide time to determine which strategy is likely to provide the best return to creditors.

      Once a company is in administration, creditors are prevented from commencing or continuing with any legal process.  In addition to the moratorium on legal proceedings, creditors are also unable to take possession of assets unless the creditor has permission from the administrator or the Court.  The Court will only grant permission if recovery of the asset does not prejudice the interests of the creditors as a whole.

      Administration is particularly useful where for example a company has arrears of rent and a landlord is threatening to forfeit the lease.  Readers will have seen numerous examples of administration being used in several high profile retail insolvencies where the administration has provided time for the administrator to identify loss making units, re-negotiate rents, cut overhead and staff numbers with a view to then selling the business as a going concern. 

      What is administration?

      Prior to the Enterprise Act being enacted in 2003, administration was a cumbersome and expensive process and was used predominantly by large companies however under the recent legislation, a company can enter administration quickly and cost effectively.

      A company should enter administration only if one of the three statutory purposes of administration can be achieved.  The statutory purposes are as follows:

      • To rescue the company as a going concern;
      • To achieve a better result for the company’s creditors than would be expected if the company was liquidated;
      • To enable a payment to one or more secured or preferential creditor

      A company can enter administration on the application of a director or a shareholder.  If there is a secured creditor with a qualifying floating charge (contained in a debenture dated after 15 September 2003), 5 business days’ notice of the director’s intention to appoint administrators must be given.  The secured creditor can then either support the director’s nomination for administrator or appoint another administrator.  A company can also go into administration following a Court Order however this is generally only required if a petition to wind up the company has already been presented.

      Within 8 weeks of being appointed, the administrator must write to all creditors and give the administrator’s proposals as to how the administrator intends to achieve the purpose of administration.  The proposals should include a report on the events leading up to the appointment of the administrator, the purpose of administration, details of the administrator’s progress since appointment and financial information such as a receipts and payments account and an estimated outcome statement.

      Administration lasts for a period of one year but can be extended either with permission of the court or with creditors’ consent.  A company may exit administration by being handed back to the directors, by entering a Company Voluntary Arrangement, liquidation or by applying for dissolution.

      Pre-pack administration

      In some circumstances, it may not be possible for an administrator to trade a company and in order to preserve the value of the company for the benefit of its creditors, an immediate sale may be preferable over liquidation.

      In a pre-pack administration, a purchaser is identified prior to administration and once the company enters administration, the administrator immediately completes the sale of the business.  This ensures a seamless transition of the business from one company to the purchaser.

      In the pre-administration period, the Insolvency Practitioner advising the company has obligations and responsibilities to ensure that the pre-pack sale is in the best interests of the creditors and the maximum value for creditors is being achieved.  There is also a pre-pack pool available being an independent body of business people, to which the purchaser can apply to obtain third party confirmation that the pre-pack sale is the best option available for all stakeholders.

  • Ask a question

    If you have a question regarding any topic not covered here please fill in the form below and we’ll try to answer it for you.