Connor Berry

Restructuring & Insolvency Services

Creditors Voluntary Liquidation (CVL)

This occurs where the shareholders, usually at the directors' request, decide to put a company into liquidation because it is insolvent. Either the company cannot pay its debts as they fall due or it has more liabilities than assets.

The purpose of the liquidation is to appoint a responsible person who has a duty to collect the company’s assets and distribute them to its creditors in accordance with the law

Administration (ADM)

When a company is facing financial difficulties it can be placed into administration. This means that, during the period for which it is in administration, the affairs, business and property of the company will be managed by a person ('the administrator') appointed for that purpose.

The administrator must perform his functions with the objective of: rescuing the company as a going concern, or achieving a better result for the company's creditors as a whole than would be likely if the company were wound up (without first being in administration), or realising property in order to make a distribution to one or more secured or preferential creditors.

Company Voluntary Arrangement (CVA)

This is a procedure which enables a company to put a proposal to its creditors for an agreement under which the creditors agree to accept a reduced sum of money in settlement of the debts due to them.

The procedure is very flexible and the form which the arrangement takes will depend on the terms of the proposal agreed by the creditors. It may involve delayed or reduced payments of debt, capital restructuring or an orderly disposal of assets.

The proposed arrangement requires the approval of at least 75% in value of the creditors, and once approved is legally binding on the company and all its creditors, whether or not they voted in favour of it. There is limited involvement by the court, and the scheme is under the control of a licensed insolvency practitioner acting as a supervisor.

Members' Voluntary Liquidation (MVL)

A company may, also, be placed in liquidation where the company is solvent. Such a liquidation is known as a members’ voluntary liquidation (MVL), in which the liquidator is appointed by the shareholders and the company’s assets are sufficient to settle all its liabilities, including statutory interest, within twelve months.

There can be tax advantages to shareholders by using this procedure as a means of realising the company's capital. By extracting funds as capital, rather than income (dividends) the tax payable is generally lower. There is also (in certain circumstances) the potential for benefitting from Entrepreneurs Relief, which reduces the amount of Capital Gains Tax payable.

Bankruptcy (BKY)

Bankruptcy is a formal court procedure which you can start or which one or more of your creditors owed £750 or more can start. Your assets (with certain exceptions) are sold to help pay your creditors. However, you can usually keep your personal belongings, the contents of your home and your tools of trade (which may include your car) unless they have a high value.

If you have surplus income after meeting your essential household and personal expenses, you will have to make payments out of your income for up to 3 years.

Individual Voluntary Arrangement (IVA)

An insolvency practitioner will prepare, negotiate and administer an arrangement for you to voluntarily repay your creditors. This may be done by using your spare income, a lump sum or other assets that you own.

If you have surplus income after meeting your essential household and personal expenses or have assets that can be used to pay your creditors or have access to a lump sum, for example from a relative, you may then consider entering into an Individual Voluntary Arrangement (IVA). Doing this will protect you from recovery action that your unsecured creditors may take, and will usually involve your creditors writing off part of what you owe them. A proposal for an IVA will only be approved where enough creditors vote in favour.