More than one option
There may be several solutions available to the company or there might just be one. It will depend on the financial circumstances of the business. The insolvency procedures are set out in law and their benefit is that, generally, the creditors – the suppliers to whom the company owes money – must accept the legal consequences of the solution.
Formal Insolvency Options
The formal insolvency options available are:
Is the company insolvent?
This is one of the first things we will work out. There are commonly two tests we apply:
- Has the company got enough income each month to cover its expenditure? What actions are creditors taking against the company? Have they raised a court action, and formally demanded money? If any of these apply, the company is likely cash-flow insolvent.
- If all of the company’s assets were sold today, would there be enough money to pay off all of its debts? If not, the company may be balance-sheet insolvent.
The company would likely qualify for an insolvency procedure if it meets either, or both, of these tests.
Assets and liabilities
What happens with the company assets?
All the company’s assets are included in the insolvency process. It is the job of the insolvency practitioner to sell them, and raise as much money as possible from their sale. The money raised goes to pay the creditors a dividend.
It may be that some assets should be sold before a formal insolvency appointment. For example, aged debt for work or products already sold to customers should be collected as early as possible to avoid excuses being made by customers who could try to take advantage of not paying timeously once a company is in an insolvency procedure. It also means the costs of time spent by the insolvency practitioner in dealing with book debt collections is kept to a minimum.
Some assets may be of a perishable nature with a very limited shelf life and again need to be sold very quickly.
Our Dunedin Advisory qualified team have extensive experience in realising assets and will discuss with you the steps required to maximise the sales value. We can where necessary introduce you to sales agents who can support the quick sale of some assets.
We will also guide you on what to do with the sale proceeds to ensure that the funds are retained for the benefit of all of the company’s creditors. It is important that the company directors follow the correct procedures to avoid being held personally liable for any wrong doing.
How are creditors treated?
Creditors rank according to law, and each class of creditor shares in the available cash by way of a dividend. Depending on the amount available, they may get none, some or all their money back. To qualify for a dividend, they should submit their claim to the insolvency practitioner dealing with the company. Once a company is in insolvency the creditors can no longer pursue the director directly (unless there are personal guarantees or personal undertakings made by a director to that creditor). It would be our team that would be the point of contact and deal with ongoing creditor demands.
How does the bank rank?
Depending on how the company’s financial arrangements are structured, the bank may be one of the most influential creditors. If the bank’s lending to the company is supported by a fixed charge over an asset (which is called a security), the bank will usually be entitled to rely on that security in an insolvency. The bank would be known as a “secured lender” or “secured creditor” and have higher rights than your general body of suppliers who are known as “unsecured” or “ordinary” creditors. The insolvency practitioner is required to work closely with the secured creditors when there are assets in a company that are the subject of securities. The secured lenders may support a sale of the business premises or other secured assets (for example plant and equipment and vehicles) as part of a going concern sale out of insolvency.
A floating charge is a type of security which applies to assets with a quantity and value that can change periodically. Examples are stock, aged debts and moveable plant.
If the bank holds a floating charge, it can request the appointment of administrators to the company in certain circumstances. It is important that where the company is facing insolvency, you understand the bank’s options and how these can be exercised. Our experienced team at Dunedin Advisory can advise you on what the likely impact on the company can be.
Communicate at an early and continuous stage
The correct, timeous communication with your bank is essential particularly where the bank holds securities that can be called up. If a company ignores the bank’s position the directors may find that the bank takes steps that limits the directors control and there are very few options available.
We can assist you in discussing matters with your bank so that the correct solution is put in place.
Director responsibilities on company insolvency
The advantage of a company with limited liability is that formal insolvency will unlikely affect the directors’ personal financial position, unless the directors have provided personal guarantees to any of the creditors (those who have debts due by the company).
Investigating director conduct
A liquidator or administrator (who are the insolvency practitioners appointed to deal with the company insolvency) will have the right to examine transactions between the company and its directors. The insolvency practitioner must investigate and report on the conduct of the directors in the three-year period ending in formal insolvency.
Safeguarding directors from personal liability
Our team can guide you on your responsibilities as a director including your fiduciary duties particularly where your company is facing insolvency. More and more actions are being raised against directors personally for actions taken in relation to their companies. It is important that you understand what you could be facing and ensure you take the correct advice at an early stage so that you are not open to challenge at a later date.
We work with many company directors who are running successful companies not subject to any insolvency providing support and guidance in relation to ongoing trading considerations. As a director making sure all decisions are taken that are for the benefit of the company trade and all of its stakeholders is paramount. Furthermore where a company experiences a dip in trade or an exceptional occurrence which affects its finances or its viability then a robust trading plan needs to be adopted. The plan must demonstrate the company has a real prospect of trading out of that difficulty. Contact us if you wish to discuss how we can help you put such a plan in place and how to protect your personal position.
If the company rents its business premises, formal insolvency will likely result in a breach of the lease, and the landlord will be able, after a short notice period, to terminate the lease and take back control of their property.
If the company is behind on its rent, the landlord may also have a right of hypotech which is a claim over the assets of the company located on the landlord’s premises. This claim only extends to goods or items that belong to the company however, and only for arrears of rent.
If the company owns its business premises, then the insolvency practitioner is entitled to sell them. This will either be as part of a going concern sale, or as a stand-alone sale of the premises once trading has ceased.
Public registers and advertising
Details of the company insolvency will be recorded on public registers, the Register of Insolvencies (ROI) and at Companies House. The ROI is kept by the government office, Accountant in Bankruptcy (AiB), and publicly available online. Any formal insolvency will be recorded by the insolvency practitioner with the statutory company information required by the Registrar.
Advertising the insolvency
The insolvency practitioner must in all cases advertise their appointment publicly, although where and how varies, depending on the type of appointment.
Dunedin Advisory can advise you in advance of our appointment where the advertisements are likely to be made.
The costs of the procedure
The insolvency practitioner or adviser fees
Where no formal appointment is made
We work with many companies that are and do not face insolvency. All our initial consultations are free of charge and on a no obligation basis. Where there is work agreed with you we will always quote our fees in advance. This may be on:
- An hourly rate based on the staff levels working with you
- A fixed day rate based on the staff levels working with you
- A fixed fee for the full project agreed
- A capped level that we work with and when it is utilised agree with you if any additional work is to be instructed.
In all instances we issue an engagement letter and scope of work for you to agree in advance.
Formal insolvency appointments
As insolvency practitioners, we are entitled by law to be paid as part of the insolvency process. Our fees come out of any money we ingather from the company’s assets. If there are no assets available, then sometimes a petitioning creditor or the directors will pay the fees, to ensure that the company still benefits from a formal winding up.
Can the fees be challenged?
Creditors will be told regularly throughout the process what we have charged and have the right to challenge our fees and outlays if they think they are too high.
How we help you
As we said at the beginning, there is no substitute for detailed advice, tailored to your circumstances. Contact us in any of the ways listed on the next page and we will arrange to meet you, free of charge, for a discussion on what your options may be.
Free Options Review
Get in touch with us for a free, confidential discussion about your situation and your possible next steps. Please call us on 01592 630085, email firstname.lastname@example.org or fill in the form below.
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