If the business has no chance of surviving, it will be best for its to be wound up. By this process the company ceases trading, its assets are sold and the proceeds distributed amongst its creditors (this is known as 'liquidation' or 'winding up'). The directors' control over the company will cease and all powers will vest in its liquidator.
If the underlying business of the company is sound but it is technically insolvent either on a cash flow basis or a balance sheet basis, it may be possible to restructure the company in such a way as to protect the underlying business. The main vehicle for achieving this will be through a company voluntary arrangement or an administration order. You must take professional advice on the best option in your circumstances.
A company voluntary arrangement ('CVA') is essentially a contract between a company and all of its creditors whereby they reach a compromise settlement. Typically, the creditors will accept a reduced payment over a period of time in return for which the company is able to continue trading - and thereby providing the creditor with ongoing business. Often, the alternative for the creditors will be a nil return on the liquidation. To achieve a CVA it is necessary to appoint a licensed insolvency practitioner to be Supervisor and to obtain the agreement of 75 per cent by value of the creditors. In relation to the majority of companies it will be possible to obtain a moratorium against all creditor enforcement action and all litigation whilst the CVA process is being put in train.
It may also be appropriate to consider appointing an administrator over the company. Since the implementation of the Enterprise Act 2002 on 15th September 2003, the process has been greatly simplified and it will often be possible for the directors to put the company into administration without even making an application to the court. Administration is, essentially, a process whereby the company is given a breathing space within which to reorganise its affairs. An administrator is appointed and takes control of the company's assets and its business. An administrator must be a licensed insolvency practitioner.
Finally, there is administrative receivership but this is not something over which the directors of the company will have control. A receivership is, essentially, a debt recovery tool available to holders of floating charges - that will, in most cases, mean your bank (see 12). Administrative receivership is also only possible if the debenture on which it is based was entered into before 15th September 2003.
