Business Debt Options
There are more formal options available to companies that for insolvent individuals. Since the introduction of the Enterprise Act 2002, there has been a strong emphasis on business rescue.
This is the company equivalent to bankruptcy. Its purpose is to realise all of the company’s assets, make distributions to creditors and prepare a report on the conduct of the directors. Liquidation can commence on a voluntary or compulsory basis.
Voluntary liquidation can be applied to both solvent (Members Voluntary Liquidation) and insolvent (Company Voluntary Liquidation) companies.
Company Voluntary Liquidation Procedure
The liquidation process commences with the directors passing a resolution to call a meeting of the members and creditors.
Compulsory liquidations involve presenting a winding up petition to court. The petition can be presented by a creditor, the company on the basis that it cannot meet its debts, or if it is just and equitable that the company be wound up.
There are three types of receivers:
- LPA receivers in respect of a property
- A court appointment from a holder of a floating charge debenture holder
- A court appointer receiver. This is rare.
LPA receivership is the favoured method for fixed charge holders to enforce their security. They can be appointed after mortgage money has become due.
Administrative receivers can only be appointed by a Qualifying Floating Charge created before 15 September 2003.
The administrative has a wide range of power. The primary responsibility is to realise the assets covered by the floating charge.
Administration has become very popular since the introduction of the Enterprise Act 2002. As previously discussed administrative receivers can only be appointed for charges created before 15 September 2003. For those created afterwards, administration is the main way into corporate recovery.
Pre Pack Administration
This procedure is widely used in insolvency circles. It involves an agreement to sell the company’s assets to a third party immediately after the appointment of the administrator. The assets are often sold to connected parties for example the company’s directors or a management buy-out.