Page 30 - BOSS Today Issue 30

LEGAL

DEALING

WITH

INSOLVENCY

If a company is failing, its directors must take care and advice…

hen a company gets is satisfied that the company books and records. Failure to co- it. The Administrator will then
Winto financial difficulty it is insolvent, then a Winding operate may lead to them being put forward proposals to the
is important to recognise the Up order will be made and publically examined before creditors aimed at restoring the
point at which the business is an Official Receiver will be the court. Ultimately, failure to company to financial viability,
technically insolvent. A company appointed. The Official Receiver attend such an examination will coming to an arrangement with
is insolvent if it cannot pay its will notify the company’s lead to a warrant for arrest, and creditors, or selling the business
debts when they become due, creditors and shareholders of will be treated as contempt of as a going concern to realise as
or if its liabilities exceed its the winding up, and investigate court which could lead to fines much income as possible to pay
assets, or both. the affairs of the company. If or even a prison sentence. the creditors.
All directors of a company there appear to be significant If you recognise that Other alternatives include
have a duty to recognise if assets, an Insolvency Practitioner your company is in financial a Company Voluntary
their company has reached may be appointed as liquidator difficulty there are other Arrangement (CVA), which
this point, because, if the instead of the Official Receiver. insolvency procedures (such is a binding agreement with
company continues to trade It is their job to realise the assets as Administration) that you creditors about the payment
whilst insolvent, this may of the company and pay any might be able to take before the of all or part of the company’s
breach Section 214 of the surplus to the creditors. company becomes insolvent. debts over an agreed period.
Insolvency Act 1986. In addition, Official Receivers and Administration is typically This procedure allows the
if continuing to trade makes the Insolvency Practitioners used to rescue a company as directors to apply to the court
company’s financial position appointed as liquidators also a going concern, or to keep a for a moratorium that prevents
worse than it would have been if have duties to investigate the company trading long enough creditors from taking action
the company had been put into actions of directors of failed to achieve a better result for against the company for 28
liquidation, then the directors companies. They will report its creditors. An Administrator days to allow them time to get
may become personally liable to The Insolvency Service’s can be appointed by court the CVA in place. If 75% in value
to contribute to the company’s Investigations and Enforcement order on the application of a of the creditors agree to the
assets to help meet the deficit to Services any conduct that creditor, the company or its proposals, then it binds all the
unsecured creditors. makes an individual unfit to directors, depending on the creditors to the deal.
When a company is insolvent, be a company director and circumstances, and sometimes Finally, there is the option of a
there may be a compulsory this may result in directors’ can be appointed without a Creditor’s Voluntary Liquidation.
liquidation otherwise known as disqualification proceedings court order on the filing of a When a company is insolvent,
“Winding Up”. This starts with being taken. Notice with the court. the directors may call a meeting
the presentation of a petition During the liquidation of the The appointment of the of shareholders, who will agree
to the court, normally by a company it is important for Administrator stops all other to wind up the company. The
creditor, but sometimes by the directors to co-operate with the procedures relating to the company will then appoint an
company itself, its directors Official Receiver by providing company so that no other court Insolvency Practitioner to act as
or shareholders. If the court information and full access to action can be taken against as Liquidator. The Liquidator will

30 BOSS TODAY | November/December 2015

DTB BOSS issue 30 p30-p31 copy 2.indd 2 13/11/2015 11:26