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Business Insolvency

Insolvency is the inability to pay one’s debts.

FRP Advisory’s team of Business Insolvency Professionals and Insolvency Practitioners have a proven track record and excellent reputation in finding practical solutions to the financial problems that your business may be facing. Our expert business insolvency team can provide friendly, reliable and professional advice if you are facing financial difficulties due to lack of cash or other concerns.

Introduction to FRP Business Insolvency


  • Administration

    Administration is an insolvency procedure that was introduced under the Insolvency Act 1986. Administration allows an insolvent business to continue to trade within defined parameters. This allows time for the underlying business to be saved in part or in whole. The company’s management and secured lenders can initiate administration. Once administration has been granted, a pre-packed sale of the assets is often arranged; this commonly known as a Pre-Pack.  The Administrator then becomes the person who runs the business; according to UK law, this person must be a licensed Insolvency Practitioner (IP). The IP will not only mange the company’s affairs but simultaneously they have a duty to protect the interests of the creditors. During the period of administration financial and operational restructuring will take place for business recovery. If business recovery is unlikely to occur via restructuring or sales, then the company will be placed in to liquidation so that remaining funds can be distributed to creditors.

  • CVA’s were introduced under the Insolvency Act 1986 just as Administration was. The CVA process aims at business recovery by saving or turning around wither in whole or in part through a business recovery plan.

    Company Voluntary Arrangement (CVA's)

    CVA’s were introduced under the Insolvency Act 1986 just as Administration was. The CVA process aims at business recovery by saving or turning around wither in whole or in part through a business recovery plan. It involves the agreement of creditors to take a reduction in the debt that is owed to them. A licensed insolvency practitioner must oversee a CVA; the IP is known as a Supervisor in this process. During a CVA, the Directors remain in control of a company.

    When creditors agree to write off a proportion of a business debt in a CVA it is known in financial markets and to business recovery experts as ‘taking a haircut’. While the company continues to trade, the CVA usually involves creditors receiving reduced monthly repayments over a fixed period. During this time the creditors will agree not to individually take action to recover their debts to the business. This affords the business protection from the creditors and allows for business recovery. If the CVA is unsuccessful in recovering the business then the company is typically put in to liquidation.

  • Insolvency

    Insolvency is the inability to pay one’s debts. Liquidation, administration, administrative receivership and CVA’s are insolvency processes that are used for business recovery.

    If a company is unable to pay off its debts then it is referred to as trading insolvent or insolvent. Specialist business recovery professionals are required in the form of licensed insolvency practitioners. According to the UK Insolvency Act 1986, insolvency is defined in both terms of the balance sheet and cash flow, meaning a company can be cash flow and/or balance sheet insolvent. There are several key parts of the Act that define being unable to pay a company’s debts:

    Section 123 (1) (e) if it is proved to the satisfaction of the court that the company is unable to pay its debts as they fall due.

    Section 123 (2) A company is also deemed unable to pay its debts if it is proved to the satisfaction of the court that the value of the company’s assets is less than the amount of its liabilities, taking into account its contingent and prospective liabilities.

    There are various core options available to management and creditors (those who are owed money by the business) once a business is insolvent. Creditors can be suppliers, bank lenders, the Inland Revenue and other trade creditors. If Directors knowingly allow a company to trade whilst insolvent then they risk criminal and civil prosecution.

  • To ensure liquidation is legally effective, a business recovery professional or licensed insolvency practitioners must be appointed.

    Liquidation

    A broad approach in dealing with an insolvent business is to place the company in to liquidation. This is a process commonly known in the UK as ‘winding up’. To ensure liquidation is legally effective, a business recovery professional or licensed insolvency practitioners must be appointed.

    Liquidation can be instigated by both the directors and shareholders of a company. Liquidation is possible without court involvement; a shareholder resolution must be passed and a licensed insolvency practitioner must be appointed as a liquidator. If liquidation is to take effect then the creditors must convene a CVL (Creditors Voluntary Liquidation). They must also have the opportunity of appointing a liquidator of their choice. A creditor also has the option to petition the court directly for a winding up order. If the winding up order is granted, then the company will be placed in to compulsory liquidation. A liquidator will then realise the assets of the company and distributes the funds that have been realised to the creditors. These funds are distributed according to their priorities once costs have been taken. According to UK law there are extremely strict rules dictating the priority of creditors.

  • Receivership

    Administrative Receivership is a process frequently referred to as a self-help recovery process for secured lenders. The lender to the business is controller of the process and not its directors. The process has reduced in popularity since the revised Company Administration process was introduced via the Enterprise Act which was designed to help business recovery or turnaround. As the Administrative Receiver only had a duty to secured and preferred creditors, unsecured creditors rarely saw a return. The Administrative Receivership process can only be relied on by secured creditors if their debentures pre-dated September 2003. The onset of the Enterprise Act, coincided with the change in status of the Inland Revenue from preferential to unsecured creditors. Lenders are also able to rely on the Law of Property Act to take control of a premises force the sale of a property via any charge the have over business property. The LPA Receiver has no other power available over any asset that is owned by the company. This means that they cannot trade the business on.


    If you are still unsure about whether or not your company is in need of a rescue solution; take our ‘Are you a Zombie’ test to find out if you or your business needs assistance.