The Insolvency Acts 1986 and 2000

The Insolvency Acts – 1986 and 2000

Dealing with all areas of company insolvency, the Insolvency Act became law in 1986.

For limited companies, the act covers all aspects of insolvency, administration and the process of winding up companies. The 1986 Act also introduced the Company Voluntary Arrangement (CVA) which is an increasingly popular option for businesses facing insolvency

The year 2000 saw an update to the 1986 Insolvency Act with some important changes. The most significant change was the introduction of a 28-day moratorium procedure into the CVA for small businesses with debt issues.

The reason for the change was a weakness found in the existing CVA procedure, where a company proposing the use of a CVA did not have the benefit of any statutory moratorium or protection from creditors.
The Enterprise Act of 2002 made further changes to the process of insolvency, mainly focusing on administration procedures. The primary aims of this were to make the administration procedure more efficient as a whole, and to improve the rescue process for troubled businesses before they are forced into liquidation.

How the Act Helps Businesses with Financial Issues

The Insolvency Act is primarily aimed towards business rescue, with the objective of saving businesses at risk of liquidation. Additionally, it provides protection from aggressive creditors, allowing businesses the breathing space to get the expert help they need in refinancing, setting budgets and managing their debts and payment plans. Businesses already face many logistical needs and obligations; add financial trouble to this and it is easy to get snowed under.

The Insolvency Act gives businesses some much needed space to appraise their situation and start exploring options to begin resolving their financial problems and move towards rescue and recovery.Company Voluntary Arrangements are one of the more important ways that the Insolvency Act has helped companies. It is a legal agreement between a business and its creditors, with particular advantages for the business.

When beginning the process of a CVA, a business avoids liquidation and prevents any court action by creditors, enabling the company to continue trading as normal. It is also very flexible, as it is a private arrangement and is adaptable depending on the situation of the company concerned.

Jargon buster

Moratorium

A period of time during which a certain activity is not allowed or required, usually put in place to protect a person, business or company.

Administration

When a company goes into administration, it is usually because it has fallen into financial difficulties, so an administrator is called in to run the company to see whether the company can continue or be sold so that new owners can turn the company around. If it can’t, then the company will be closed down and the assets sold to cover its financial responsibilities.

Creditors

A company or individual who is owed money by another company for services provided. Creditors are classed as liabilities as it is money outstanding

Top tips

• Remember that the business does not need to close when filing for insolvency.
• If the business is facing legal action, do not procrastinate. Ignoring it will only do more damage.

Be realistic and pragmatic

Do not be too optimistic or feel defeated. Take a step back, appoint an Insolvency Practitioner to help you and see the situation as it is.