Rescue Procedures

Should a formal procedure be required, this need not mean liquidation. Within our bag of tools we have two procedures that can rescue a company in financial difficulty and if used correctly allow the business to exit the procedure with its financial problems under control. The two procedures are administration and a company voluntary arrangement.

  • Administration When a company is facing financial difficulties it may be placed into administration. This means that during the period of administration, the affairs, business and property of the company will be managed by a person (the administrator) appointed for the purpose. The administrator must be a licensed insolvency practitioner. The aim of administration is to save the business or achieve a better result for creditors than if the company were wound up.
  • Company Voluntary Arangement A company voluntary arrangement is an agreement between an insolvent company and its creditors. The agreement allows the company to repay some or all of its debt from future profits. There is limited involvement by the court and the scheme is under the control of a supervisor, who must be a licensed insolvency practitioner. This approach aims to preserve the company, rebuilding sales and profits over time and keep control of the company in the hands of the Directors.
  • Surviving the Worst Case Scenario We will confirm whether administration or a company voluntary arrangement are right for a particular situation but should they not be appropriate, we will work with you in considering alternatives such as administrative receivership or liquidation.
  • Administrative Receivership An administrative receiver is normally appointed by a bank or other lending institution which holds the majority of a company’s assets as security against lending under a floating charge debenture. The administrative receiver can continue to operate the business, and often does, whilst trying to sell it as a going concern. A higher price is usually gained than if the company’s assets were disposed of piecemeal. The purchaser acquires the business free of debt and the money received is distributed to creditors in the order of their security and statutory order of priority. An administrative receiver must be a licensed insolvency practitioner. As licensed insolvency practitioners Cranfield Business Recovery regularly acts in these circumstances.
  • Voluntary Liquidation When either the directors or the shareholders recognise that because it is insolvent a company cannot continue to trade, they can instigate the appointment of a liquidator who has a duty to collect and realise the assets and distribute funds to the creditors. In 2004, there were over 12,000 company liquidations in England and Wales, so if you find yourself in this situation – you are not alone. Any number of external factors can lead to this unfortunate position. It could be loss of market, a large bad debt or your main or only customer ceasing to trade – just think of the impact the MG Rover crisis had on its West Midlands suppliers. Or it could be completely unforeseen changes in market conditions – as was experienced by London hoteliers in the wake of the 7 July 2005 bomb attacks. Liquidation can result from a series of poor management decisions leaving the company struggling with its markets and customers, finances and debts and ultimately getting into a situation where there seems to be just no way out.
  • Compulsory Liquidation Compulsory liquidation occurs when a company is wound up by order of the court. This event usually occurs on the petition of a creditor, the company or a shareholder. A winding-up petition may also be presented by the Secretary of State for Trade and Industry on the grounds of public interest. The purpose of the winding-up order is to appoint a liquidator who has a duty to collect the company’s assets and distribute them to its creditors in accordance with the law. The court initially refers the case to the official receiver, who is a civil servant and an officer of the court. If the assets are likely to cover the administrative costs, the official receiver calls a creditors’ meeting to appoint a liquidator other than him or herself, otherwise he or she will remain in office. In some cases, the Department of Trade and Industry may use its power to appoint a liquidator as soon as the winding-up order is made. In any event, the official receiver retains responsibility for investigating the conduct of directors and other officers.