FAQs (Frequently Asked Questions) on Business Rescue and Company Debt

COMPANY DEBT ANALYSER

FAQs (Frequently Asked Questions) on Business Rescue and Company Debt

What are insolvency proceedings?
These are formal measures taken to deal with company debt. There are many different types of company insolvency proceedings.

Do insolvency proceedings apply to all types of companies?

Compulsory winding-up and receivers (including administrative receivers) apply to registered and unregistered companies (including oversea companies).

Voluntary winding-up and administration orders do not apply to unregistered companies, which cannot be wound up by these methods.

If the liquidation or receivership began before 29 December 1986, then the law in force at that time will continue to apply.

Remember: Not all companies in liquidation are insolvent.

Do all companies have to go through insolvency proceedings before being dissolved?

No. If the Registrar has reason to believe that a company is not carrying on business or is not in operation, its name may be struck off the register and dissolved without going through liquidation. A private company that is not trading may apply to the Registrar to be struck off the register. This procedure is not an alternative to formal insolvency proceedings.

What types of liquidation are there?

Members’ voluntary liquidation (or members’ voluntary winding up) – this is when the shareholders of a company decide to put it into liquidation, and there are enough assets to pay all the debts of the company, i.e. the company is solvent.

Creditors’ voluntary liquidation (or creditors’ voluntary winding up) – this is when the shareholders of a company decide to put the company into liquidation, but there are not enough assets to pay all the creditors, i.e. the company is insolvent.

Compulsory liquidation (or compulsory winding up) – this is when the court makes an order for the company to be wound up (a ‘winding-up order’) on the petition of an appropriate person. If there is more than one director, all the directors must jointly present the winding-up petition – a single director cannot present a winding-up petition.

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

A voluntary liquidation, which can be either a members’ voluntary liquidation or a creditors’ voluntary liquidation, is brought about by resolution of the company and is conducted by a qualified practitioner. A compulsory liquidation is brought about by an order of the Court and can be conducted by the Official Receiver or a qualified practitioner. For more details see the Voluntary Liquidation page.

What are the alternatives to liquidation?

There are 3 possibilities:

Informal arrangement – the company could consider writing to all its creditors to see if a mutually acceptable agreement can be reached. It is advisable to include a timetable of when payments will be made.

Company voluntary arrangement (CVA) – this is a formal version of the arrangement described above. The directors would need to apply to the court with the help of an authorised insolvency practitioner, who would supervise the arrangement and pay the creditors in line with the accepted proposals.

Administration – this is a court procedure that gives the company some breathing space from any action by creditors. A court can grant an administration order to enable the company to:

  • Survive, in whole or in part, as an ongoing business.
  • Organise a voluntary arrangement or compromise with its creditors.
  • Get a better realisation of assets than would be possible if the company went into liquidation.
  • The procedure is managed by an administrator, who must be an authorised insolvency practitioner.

How do I find out about placing my company in liquidation (or any other insolvency proceeding)?

We recommend taking professional advice as soon as possible. You should contact Cooper Matthews immediately to discuss your situation and that of your business.

Do the people in charge of these company insolvency proceedings hold any kind of qualification?

Since the implementation of the Insolvency Act on 29 December 1986, anyone undertaking the duties of liquidator, administrative receiver, administrator or supervisor of a corporate voluntary arrangement must be a qualified insolvency practitioner. Those holding the position of receiver manager or Law of Property Act receiver do not need this qualification, nor does anyone who was already in office before the Act was implemented.

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?

It is possible for a creditor to petition the court to have a company placed into compulsory liquidation. Refer to the Winding Up Process notes and seek professional advice.

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

Only liquidations result in the company being automatically dissolved. It is possible, following the conclusion of a receivership, administration or corporate voluntary arrangement, for a company to remain on the live register and continue trading.

What happens to the directors of an insolvent company?

The liquidator, administrative receiver, administrator or Official Receiver has a duty to send the Secretary of State for Business, Enterprise and Regulatory Reform, a report on the conduct of all directors who were in office in the last 3 years of the company’s trading. The Secretary of State has to decide whether it is in the public interest to seek a disqualification order against a director.

Examples of the most commonly reported conduct are:

  • Continuing the company’s trading when the company was insolvent;
  • Failing to keep proper accounting records;
  • Failing to prepare and file accounts or make returns to Companies House; and
  • Failing to send in returns or pay to the Crown any tax that is due.
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