Frequently Asked Questions – Here Gibson Hewitt answer the top frequently asked questions about Liquidation, CVA, Insolvency and Business debts in general.

What is the difference between a voluntary and a compulsory liquidation?

A voluntary liquidation can be initiated by members or by creditors. It is brought about by a resolution of the company and is conducted by a qualified practitioner. A compulsory liquidation is brought about by a Court Order. It is usually conducted by the Official Receiver in the early stages before passing to a qualified practitioner.

If the directors of a company embark on a CVA, how do you advise them what to offer creditors?

There are no statutory guidelines on what should be offered, although over the years we have built up a good understanding of what is fair and will work. As experienced Supervisors of CVAs, we begin by making a comprehensive assessment of the Company’s assets and potential and then give the directors guidance on what to offer creditors.

The directors then make a proposal to creditors which is prepared with our assistance based upon a business plan. This proposal states what funds will be made available to creditors and over what time scale. Whilst the proposal is being drawn up and put to creditors we would act as the Nominee. Creditors are sent the proposal and asked to vote to accept it, vary it or reject it at a meeting. Creditors are given 14 clear days notice of the meeting.

The key factor is that Creditors feel that the proposal puts them in a better position than they would be if the company ceased trading and was wound up. This may be more money or it may be the same amount of money but receipt of it sooner. Many creditors are likely to agree to receiving a smaller sum if a lump sum can be offered immediately, for instance by an injection of cash from realising equity by re-mortgaging the property or an injection from shareholders, or by outside interests. We point out to creditors that it is in their best interest to retain a customer who has to pay on agreed credit terms whilst they can benefit from the business’s future profits.

How does it affect the CVA if creditors have started legal actions against the company?

Under these circumstances we can, on the company’s behalf, apply to the Court for a Moratorium, which will put a stop on any legal proceedings whilst creditors consider the proposal. However, our rule is to approach creditors as soon as possible rather than waiting for them to loose patience and start recovery proceedings.

A company owes me money. They have told me they have ceased trading but are not going into liquidation. Can I have them wound up?

A creditor can petition the court to have a company placed into compulsory liquidation. Anyone thinking of doing this should seek professional advice.

Whatever the proceeding, the company is insolvent and it will eventually go off the Register, won’t it?

Companies are struck off the Register for one of 3 basic reasons:

  • A formal insolvency of winding up process has been completed
  • An application under Section 652 has been filed
  • The Registrar of Companies takes action due to non filing of accounts and annual returns. This is not recommended as a course of action for Directors to follow as there may be other consequences.The initial consultation is FREE. After this meeting we would advise on the company’s rights and the available alternatives. If you wished to enter into a Company Voluntary Arrangement we would act as the Nominee. Our charges for acting as Nominee are quoted on an individual basis according to complexity and number of creditors. When the CVA is accepted by creditors we would become its Supervisor. Our remuneration for this is agreed by the creditors and is taken out of the funds held for them.A CVA can be for any period. Hopefully it will end when rescue has been achieved. If the scheme is based on periodic contributions (as opposed to asset sales or other group restructuring) it will normally last around three years.Whilst each case needs to be considered on its merits, the following are some reasons why a CVA might be the best solution:-
  • Why choose a CVA instead of a Liquidation?
  • How long does a CVA Last?
  • What are your charges?
  • It provides a legally agreed time scale to achieve a better result for the creditors. (Liquidators are unlikely to trade the company)
  • It provides the possibility of restoring the company to health – provided there is some underlying viability. Thus it is often a useful tool for dealing with a one off problem.
  • The directors remain in operational control
  • Only the creditors are advised of the CVA – not the customers
  • It enables contracts to be completed without incurring penalty charges (provided the cash flow is sufficient)
  • The problems are considered to be more temporary rather than permanent. No. You must be a small company (usually with turnover of less than £5.6m) and be seeking your creditors consent to a CVA. You must seek advice at the earliest opportunity from a Licensed Insolvency Practitioner. This should be if the company is unable to pay its ongoing debts or if its assets are less than its liabilities, including contingent liabilities. The sooner you seek advice the greater will be the available options.
  • When should I seek Advice?
  • Can all companies apply for a Moratorium?