Business Survival or Business Closure – Demystifying the options surrounding recovery and insolvency

By Noel Lavery. Head of Corporate Recovery and Insolvency, Harbinson Mulholland

According to recent DTI Statistics, last year saw 250 NI companies placed in compulsory liquidation and 132 went into creditor’s voluntary liquidation.  There were 64 Administration appointments.

As the number of troubled businesses continues to grow across the UK, so too does media coverage. The words “Administration” and “Liquidation” are often heard. This brief guide outlines what each of the processes involves for a business in financial trouble.

Administration
An Administrator is normally appointed by a Bank or the company’s directors.  The process was recently made simpler and is now very common.  The Administrator is responsible to the whole body of creditors and they approve his proposals for the company.  It may result in the survival of the company or just prove to be an alternative route to liquidation. 

Pre Packaged Administration
A ‘pre-pack’ is a process where the assets of a company are sold by the Administrator immediately after his appointment. Its advantage is that it may allow the Administrator to pass a trading business quickly into new ownership and so realise a greater amount for its assets. Pre-packs have attracted criticism because of the absence of creditor participation in the decision-making.  There is limited opportunity to market the business and directors often emerge as the new owners without paying the company debt.

Company Voluntary Arrangement (“CVA”)
This is a private arrangement which a company proposes to its creditors. Trading usually continues and creditors approve the proposal in advance for the ‘CVA’ to take place. The proposal sets out what the creditors may expect and what sanctions apply if the company fails to live up to its part of the deal.  The CVA is supervised by an Insolvency Practitioner.

Creditors’  Voluntary Liquidation (“CVL”)
A formal insolvency process where the company is at an end.  The Directors decide to place the company in liquidation and convene a creditors’ meeting for this purpose and to appoint a Liquidator.  Trading ceases and it is clear that creditors will not be paid in full.  The Liquidator sells the assets and the proceeds are distributed to creditors according to legal priority.

Compulsory Liquidation
This is a liquidation process which is not initiated by the directors.  A creditor petitions the Court to have the company wound-up and the Official Receiver is appointed as Liquidator. 

There are few businesses that can claim to be immune to the effects of recession and whether a business ultimately survives or not will depend on whether its management team put in place a clearly defined strategy for survival.   We can help you to consider the options available to your business.  The sooner you seek advice the better. 

We advise but you decide.