It is the cash flow test that is normally more critical. If it can be shown that a business can’t pay its debts when due, creditors could move to force that company into a formal insolvency process.
In order to manage the cash flow of a business it is essential to:-
Know at any time what amounts are owed to the company by customers and what the business owes to its creditors.
Send out invoices promptly to customers with clear payment terms and ensure a strict credit control process is maintained
Only incur expenditures that can be paid as a result of the business’s activity.
Understand that liabilities due to HMRC are as important as those to other creditors.
Leave flexibility within the company’s financial resources to meet unexpected liabilities.
A solvent liquidation, or Members Voluntary Liquidation (MVL) is a statutory process where a company's assets are distributed to the shareholders so that the company can be dissolved. This may be relevant where the company's activities have outrun their course or a group structure would benefit from being streamlined by elminating dormant companies. An MVL may also be used to "de-merge" 2 or more trading activities of a single company. Additional benefits include:- A prompt and tax efficient return of capital to shareholders Elimination of compliance costs such as audit and tax fees and insurance costs A means to "de-merge" where this is the desired outcome in a tax efficient way, channelling each trading activity to those shareholders specifically wishing to retain interest in it. An alternative option may be is for the company to apply to be struck off at Companies House - however, please contact a member of our team to discuss specific circumstances to ascertain the most appropriate course of action.
There are 2 types of liquidation, also known as winding up; creditors' voluntary liquidation and compulsory liquidation (winding up by the court).
This is brought about by the directors of a company, who have taken the decision that due to its debts, the company can no longer continue to trade. A creditors' meeting will have taken place, at which creditors have the opportunity to vote as to who should be appointed Liquidator. The Liquidator's role is to realise the company's assets for the benefit of the creditors and to investigate how the company became insolvent. This is to establish whether any civil proceedings should be taken against the directors or others for the recovery of company assets or contributions to its estate.
This process is often instigated by a creditor of the company but can also be presented by a shareholder, director and in exceptional circumstances, the Secretary of State. Compulsory Liquidation is a court-based procedure. If a winding-up order is made against the company, the Official Receiver (a member of the Government's Insolvency Service) will generally be responsible for the company's affairs but may appoint an Insolvency Practitioner to act as Liquidator, from the private sector, to realise any assets.
There are a number of options for businesses facing insolvency and we can advise on the best course of action that is appropriate for your circumstances.
A CVA is a formal arrangement a company enters into with its creditors for the discharge of its liabilities. This may involve payments being made over a period of time from future profits, a financing arrangement by a 3rd party, or sale of some of the company's assets to fund its obligations under the CVA. The process involves an Insolvency Practitioner acting as Supervisor of the arrangement.
Please contact us to discuss your buisness circumstances: Contact Us
An Administrator is appointed to take charge of the affairs of the company to ensure that:- the company continues as a going concern, a better return is achieved for creditors than if the company were liquidated. preferential creditors are paid. An Administrator has authority to do what is required to achieve the best outcome for the creditors - whether that is continuiing to trade the business or selling it. This is not as straight forward as looking to gain the highest price but needs to involve considerations such as security of payment by the purchaser, whether the purchaser will pay some or all of the company's creditors and whether the consideration includes any deferred element. Whilst the company is in administration, it is protected from action by its creditors. Administration can be instigated by the company, its directors or its creditors. Pre- Packs This is a method of marketing and then agreeing a sale of the business and the assets of the company, prior to it going into administration, with the sale being completed immediately after the appointment of the Administrator. Please speak with a member of our team for further information regarding Administration.
John Harlow and Lynda Butcher are licenced in the UK as Insolvency Practitioners by the Insolvency Practitioners Association. When acting as Receiver, Administrative Receiver or Administrator, John Harlow acts as agent only, without personal liability and when acting as Administrator, the affairs business and property of the company are being managed by him. Lynda Butcher holds a non-appointment taking licence.