There are a number of solutions available to rescue a financially distressed business, and the most appropriate solution will depend upon your company's own unique circumstances, what you are seeking to achieve moving forward, and also the intensity of pressure you are under from the company's creditors.
Pre-Pack Administration, Liquidation, and a Company Voluntary Arrangement ("CVA") are all formal insolvency procedures, whilst a Company Debt Management Plan is not a formal insolvency process, and is not registered at Companies House.
In either a Liquidation or Pre-Pack Administration scenario, the company will cease to trade, although the business (including all assets & goodwill) can be seamlessly transferred to, and continued by, a new, debt-free phoenix company (which is perfectly legal, subject to certain conditions and criteria being met), as the Enterprise Act 2002 and subsequent UK insolvency legislation encourages business rescue and the survival of the core business via a phoenix company scenario.
In a CVA or Debt Management Plan scenario, the limited company will remain in existence and continue to trade, but with its debts restructured and rescheduled. A CVA is a formal insolvency process, which is registered at Companies House, although it does offer the benefit of a moratorium, preventing creditors taking enforcement action.
For most businesses, Pre-Pack Administration or Liquidation are most appropriate, as the business can seamlessly continue via a phoenix company, but with all debts fully written-off, and once free of the burden of historical debts, can trade profitably. However, in circumstances where the company itself needs to be preserved for specific legal and/or contractual reasons, then a CVA or Debt Management Plan may well be appropriate.
Buy-back of the business (assets, contracts etc.) is agreed in advance
New, debt-free, company can trade under the same (or a variation of the original) name
All legal action is stopped, and the business continues to trade solely under the control of the phoenix company
Seamless transfer of business ensures that minimal disruption occurs
Customers are not necessarily contacted (they may well be unaware of the procedure)
Transfer of the business includes goodwill, customer list, IP etc.
The transfer of ownership can include the book debts (sales ledger) of the old business
You can choose to simply close the company and walk away without any personal liability
Directors may also be able to claim £'000's in unpaid wages and redundancy from the Redundancy Payments Office
Debts are significantly reduced, with the balance rescheduled into regular monthly payments
The business continues to trade under the control of its directors
Minimum disruption occurs (it is probable that customers will be unaware of the CVA)
CVA enables onerous contracts, leases, obligations etc. to be terminated
Legal action by creditors is stayed
No investigation into directors’ conduct
No calling-in of overdrawn directors’ current accounts, no voidable transactions etc.
Each solution has pros and potential cons. We will work closely with you to fully understand your company's unique circumstances, identifying any areas of potential concern, and will formulate the best solution, tailored specifically to your business and also to the outcome you want to achieve moving forward.
In most circumstances, Liquidation or Pre-Pack Administration are best options for a business faced with historical debt, and are often the cheapest procedure, as these procedures will completely write-off all your company’s debts and yet still allow your business to continue to trade via a new, debt-free phoenix company.
A phoenix company is pefectly legal. Both Pre-Pack Administration and Liquidation write-off all company debts, allowing the business to continue via a new, completely debt-free phoenix company without the burden of historical debt.
Drectors will however be subject to an investigation, and certain transactions with directors or shareholders, or any connected parties/companies, may be deemed to be voidable. Also, in cases of misconduct, delinquent directors can potentially be disqualified from being a company director.
However, assuming that a company's directors have acted reasonably, there should be no issues whatsoever regarding their conduct or any other personal implications.
In a CVA or Debt Management Plan scenario, the limited company will remain in existence and continue to trade, but with the benefit of its debts restructured and rescheduled.
There is no investigation into the conduct of the directors, and also and no prospect of any transactions being deemed to be voidable.
An agreed proportion (or all) of the company's debts will be repaid to creditors, albeit over an agreed period of time, and therfore although a significant proportion of liabilities is written-off, these procedures will normally be more expensive overall, and will place a potentially significant debt and cash-flow burden on the company, with monies being required to be paid every month to repay historical debt from future income & (taxable) profits.
Enforcement action for arrears of VAT, PAYE/NIC & corporation tax can be stopped
All business loans can be fully written-off
We can stop all creditor pressure and will deal with creditors on your behalf
Any expensive or unnecessary leases or agreements can be terminated
Enforcement action can be stopped, protecting your company’s assets
Company liquidation can result in certain transactions being overturned or deemed to be voidable, resulting in personal liability. We will ensure no such circumstances arise
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