What is Insolvency?
It is defined as being unable to pay your debts as and when they fall due.
Do you need insolvency advice? Yes, if you are unable to rectify the problem in a reasonable period of time.
The majority of people who are insolvent do not need professional assistance as they have a short term issue which they themselves resolve. But when you are unable to resolve this within a reasonable period of time then you should seek the advice of a professional. Procedures are available to you such as Individual Voluntary Arrangements (IVA). These paragraphs are to assist avoiding Personal Bankruptcies and making arrangements with your creditors.
If you are self-employed or in a partnership and you are insolvent then it is possible we can assist you and protect your business and assets. A typical example of someone we can assist is a self-employed individual that runs their own business (plumbers, builders, accountants, mechanics, jewellers) who has built up debts with banks, credit cards, trade suppliers and H M Revenue and Customs to an extent that they cannot repay these debts without reaching some sort of arrangement with these creditors.
If you are in this category and have a business or assets you want to protect, then please contact us as we can assist you by either formally working with a Licensed Insolvency Practitioner to protect you or by informally striking a deal with your creditors for you where appropriate.
Ultimately if you are better being advised to make yourself bankrupt then we can assist you with this also, ensuring that you comply fully with the law whilst at the same time protecting you/or your spouse’s joint assets where possible and advising on any issues you may face post-bankruptcy.
Partnership insolvency is slightly different from personal insolvency in that in effect the partnership is itself a separate legal entity. Partnership insolvencies are far less common than personal insolvency, and typical examples are professional firms such as accountants or solicitors. If you are in an insolvent partnership we can act with a Licensed Insolvency Practitioner to protect you and your business partners and assist with a restructure which, with the consent of creditors, will see them making a recovery of monies they are owed whilst allowing you to continue to trade.
A company is a separate legal entity. When a company is insolvent and we are approached by directors we are usually asked two questions: what can be done to assist the company and what can be done to protect me personally?
We advise directors that they must act in the interests of their company so they must seek to protect creditors and members and not increase losses to either.
The main types of company insolvency are as follows:
Creditors Voluntary Liquidation – this is commenced by the directors with the support of 75% or more in value of members and requires a meeting of creditors to determine who will be the liquidator. The liquidator must be a Licensed Insolvency Practitioner. It is for the creditors to determine who will be liquidator. In the majority of cases the liquidator will be the person nominated by the directors.
Compulsory Liquidation – this is where a creditor places the company into liquidation or where the directors themselves place the company into liquidation through the Courts. This is more common where the company has no assets.
Administration – most commonly this is a process whereby the directors can place the company into administration with a view to a sale of the business. It requires the consent of a creditor with a floating charge (usually a bank will have a floating charge if the company factors its debts). Administrations usually occur on larger jobs where the business is worth more than the mere break-up value of its assets, i.e. it has an established name which can be traded and sold.
A small private limited company owned by husband and wife who are also 100% shareholders. They have put their own money into the business over the years as and when necessary but now find themselves in a position where the limited company cannot pay its debts as and when they fall due, as a result creditors are demanding repayment and the directors are being threatened that if they do not pay outstanding bills then one of them will issue a winding up petition. The directors call us. We advise they are insolvent and must protect the assets for the benefit of all parties. We advise the directors the business is viable but not in its current form. The directors personally buy the business (which is owned by the limited company) for market value then instruct us to place the company into liquidation (compulsory or voluntary). A liquidator is appointed, in the case of a voluntary liquidation by creditors, and in this instance as the directors are owed the most money as creditors of the company they get the most votes and therefore they appoint the liquidator they have chosen. Other creditors accept this decision.
The chosen liquidator realises the remainder of any assets, adds this to the sums held by us on the sale of the business and he/she agrees creditors’ claims and distributes funds. The directors now have a new limited company but with the same business, in this example they kept the same staff the same telephone number and even continued to trade with a similar name by virtue of provisions with the Insolvency Legislation.
Most people will ask how this is possible. The simple answer is because it is in the interests of creditors. This route enables a business to survive, employees to retain their jobs and creditors receive a reasonable return. There is a misconception that insolvency law is designed to punish individuals with debt, but in reality the law is there to allow people to rebuild their lives.
Often our advice is sought after the Insolvency procedure – we have extensive experience in advising Direction on a claim by liquidated firms.
Return of preference payments
Repayment of overdue directors loan account
Other consequences are such things as proceeding under the Company Director Disqualification Legislation.
In Personal Bankruptcies we represent many spouses in the protection of jointly owned assets against claims by Trustees in Bankruptcy.
Whatever the scenario, you can be sure that at CWC we have the expertise to help you and to remove some of the worry during these stressful times.