Often times people get the wrong idea about the insolvency industry. I think I said in my previous article about how insolvency practitioners are seen simply as corporate undertakers. The truth is actually somewhat different. What most people don’t seem to realise is that when the insolvency laws underwent radical change under the Insolvency Act 1986, one of the key changes in the whole character and spirit of insolvency was the introduction of business recovery and rescue.
So in other words, if a company for example, gets into financial difficulties and becomes insolvent it doesn’t necessarliy have to be wound up and put into liquidation. It can live to fight another day through a company voluntary arrangement (CVA).
The easiest way to describe what a CVA is is to call it a “deal with creditors”. The company has to offer creditors some repayment terms that leave creditors in a better position than they would be in if the insolvent company was wound up. Usually that takes the form of payments from future income which are made to an insolvency practitioner who takes on the role of Supervisor of the CVA. The Insolvency firm then makes either interim distributions from accumulated funds over the period of the arrangement or he makes a full and final dividend at the end of the arrangement.
Creditors are empowered with the choice to decide if the CVA goes ahead or not. They can vote for the approval or rejection of CVA proposals or they can approve it so long as some modifications are made. For example, the insolvent company might offer 25 pence in the pound over 5 years. The creditors might turn around and say they will accept 30p in the pound over 6 years. The company then either agrees to the modifications or refuses and often ends up in liquidation instead.
The role of the insolvency practitioner (IP) is crucial in this process. He should be experienced in dealing with CVAs and know through his experience what kind of deal creditors are likely to accept. It is common for the IP to speak with creditors at an early stage prior to formulating proposals and see what they are likely to agree to. In that sense, if you are considering a CVA you should choose your IP carefully. Preferably find a local insolvency practitioner firm who understands your local market and perhaps even has prior dealings with your local trade creditors. This will help hugely in securing a successful CVA for your company. It is worth saying also that most first meetings are free of charge and so you get the chance to decide if the insolvency practitioner is someone you feel comfortable with and who will work hard on your behalf to get the right deal in place for your company.
It is never an easy decision for directors to sit down and agree to meet with a licensed insolvency practitioner but it shouldn’t necessarily be seen as though the game is up and the company must cease to trade. They may well be regarded as corporate undertakers but many people may be surprised at the roll they can play in turning around the fortunes of an insolvent company.
Often times the first time a director considers meeting a Blackpool Insolvency Practitioner is when the company accountant thinks the directors need to seek professional advice beyond the normal capability and experience of the accountant. It may even come as a shock to direcotrs to have their trusted accountant suggest meeting with an insolvency specialist but directors must always remember their duties to act in the best interests of company creditors. If the accountant is concerned that debts are mounting up and the company is failing to make payments on time then finding out how someone skilled in insolvency procedures can help is highly advisable.
Is your company insolvent?
If you as a director are worried that all an insolvency practitioner (IP) wants to do is to put your company into liquidation for a large fee then think agan. There are some IPs that tend to spend most of their days doing just that but a good insolvency practitoner Blackpool will take stock of the company’s position overall and see whether the company can still be saved. They will prepare what is called a statement of affairs which details all the company’s assets and liabilities. Some people see it is as being similar to a balance sheet but the figure at the bottom of the statement of affairs will show whether the company has a surplus or deficit of assets over liabilities. In that sense it captures, at one moment in time, whether the company is solvent or insolvent on a asset/liability basis.
We should point out right now that insolvency is not only measured on an asset/liability basis. Your company may even pass the solvency test on that basis but if it can’t pay it’s bills as and when they fall due for payment then the company can still be considered to be insolvent. The IP will therefore take a look not just at assets and liabilities but the liquidity position of the business and whether its inability to pay its bills when they drop on the doormat is a short-term liquidity problem or something more serious.
Insolvency Practitioners’ Advice
Now that the IP has a good picture of the state of your company’s position he will then advice on the best course of action. If The business has a realistic chance of survival the insolvency practitioner in Blackpool could recommend a range of options. These may include a Company Voluntary Arrangement under which the company’s creditor payments are restructured into more manageable payments. It isn’t even always required that all debts are repaid in full in a CVA and if it is the best course of action to maximise repayment to creditors AND save the business then it may be an attractive option to you as directors and to creditors. Prepack administration may be another way of keeping the business going and avoiding liquidation.
In summary, don’t merely assume just because your Blackpool company is iinsolvent that it can’t be saved or restructured in some way. Take professional advice as soon as you realise you have a problem.