Corporate Restructuring & Insolvency

Insolvency is the state of being unable to pay your debts as they fall due, or having total liabilities in excess of the total value of your assets.

An insolvent company’s records will remain permanently at Companies House and the London Gazette. In the case of an insolvent individual, if you are bankrupt, your details will normally remain on the individual insolvency register for 12 months until discharge. If you do not comply with your bankruptcy obligations or are subject to a voluntary arrangement, your details may remain on the individual insolvency register for a longer period.

There is no single insolvency process: an insolvency process could be one of a range of procedures including but not limited to (for companies), voluntary liquidation, compulsory liquidation, administration, company voluntary arrangement, a scheme of arrangement, or (for individuals), bankruptcy, debt relief order, individual voluntary arrangement. One thing these all have in common is that they are formal legal procedures where some sort of notice is either circulated to creditors or filed with the court for a corresponding legal protection, because either an individual or company does not have enough money to pay everything they owe, or because the total value of their assets is exceeded by the total value of their debts.

A form of settlement or restructuring between a company and its creditors whereby the company’s debts (often discounted) will be paid over time but the company’s directors remain in control, subject to supervision from a licensed insolvency practitioner. Requires 75% by value of creditors to vote in favour.

A formal and legally binding agreement between an individual and their eligible creditors to pay back their debts over a period of time (often at a discount). An IVA is an alternative to bankruptcy and is supervised by a licensed insolvency practitioner. Some companies (not themselves insolvency practitioners) will advertise debt solutions claiming they are ‘government legislation’ to ‘write off’ large amounts of debt, whereas all they are really offering is to refer the debtor for an IVA.

A voluntary liquidation can either be solvent, by way of a members’ voluntary liquidation (MVL) or insolvent, by way of a creditors voluntary liquidation (CVL). An MVL is commenced by a solvent company to distribute its assets among shareholders in the most tax efficient manner, under the supervision of a licensed insolvency practitioner. A CVL is commenced by an insolvent company, usually as a result of pressure from creditors. Usually much more cost effective than a compulsory liquidation, and more flexible in terms of the company/ its liquidator selling on assets including the company’s main business. A CVL requires a licensed insolvency practitioner to be willing to take appointment as liquidator, and creditors in principle can reject company’s choice of liquidator and install their own.

Yes, provided that the company is either in a creditors’ voluntary liquidation or members’ voluntary liquidation and remains in that procedure at the time you are looking to sue. However, it is possible for a liquidator to apply for a stay in proceedings. Suing a company in liquidation is not something we would ordinarily recommend until you have first reached out to the liquidator, because suing companies can be expensive and very often the claim could be dealt with by the liquidator without incurring court fees.

It depends on the complexity of the company’s affairs, the sector in which the company operates, what assets the company owns, and how many third parties and creditors the company may have. An open conversation should be held with one or more insolvency practitioner accountants who will be able to quote accurately in the circumstances. If you are unsure which insolvency practitioners to approach, we would be happy to discuss this with you.

A directors loan account is a record of money borrowed from and/ or loaned to a company by its director, distinct from salary, dividends and expense repayments. Overdrawn DLAs need to be paid back following the insolvency of the company or compromised under arrangements made with the relevant insolvency practitioner.

It is a myth that insolvency procedures automatically result in a written off directors loan account if the director owes money to the company. However, it is possible to improve a company’s balance sheet if directors write off sums that a company owes to them. Directors should carefully consider this option based on the company’s circumstances, and ideally seek advice from accountants and/ or solicitors in the first instance.

Sometimes, liquidity is used to refer simply to the value of the company’s total assets in excess of the total business liabilities. In the context of potentially insolvent businesses, liquidity refers to either the amount of cash or tradeable assets in the business or the ability of the business to reduce their other assets to cash or tradeable assets quickly.

Broadly, when a company enters into liquidation, the liquidators will sell the assets to repay the creditors and the company is eventually closed down. The main types of liquidation processes are voluntary liquidation and  compulsory winding up, each of which have different procedures and different effects, and all of which ultimately result in dissolution.

A streamlined formal insolvency procedure suited to individuals with lower incomes, lower value assets and a relatively modest amount of debt. A DRO is an alternative to bankruptcy but with strict eligibility requirements. Financial thresholds for eligibility for DROs are often reviewed by the government so it is best to check with the government website to see if you qualify.

Business assets are worth what the market is willing to pay for them. They are valued very differently across different sectors and at different points in a business’ life cycle. So far as the court is concerned, business assets should only be valued by a qualified person – the type of qualification will vary per the nature of the asset. If in doubt, seek a valuer in liaison with an accountant or solicitor. It is particularly problematic to ascertain share valuations, which will often need to be undertaken by a forensic accountant and it is rarely, if ever, appropriate for directors to rely on their own valuation of the business.

It depends on why and how the business closed. If the closure involved liquidation or administration, assets are usually sold, transferred or otherwise distributed to the creditors, whereas any onerous assets are often disclaimed or left in the company upon dissolution.

When the business is set up, and before it takes on finance and other commitments, directors need to be careful to take appropriate advice, particularly if they are asked to give personal guarantees. As the business progresses, the best way to protect personal assets is to comply with any and all statutory and contractual obligations. If in any doubts, seek professional advice at an early stage from accountants, insolvency practitioners, or specialist solicitors.

A creditor is a company or person owed money by another company or person. Creditors can be secured, preferential or unsecured. Creditors can also be future creditors (owed a sum of money at a future date) and contingent (will be owed a sum of money if something does or doesn’t happen) – future and contingent creditors are relevant to insolvency procedures and their approval.

Corporate restructuring is a broad term referring to a range of options for dealing with problem debt from changing the structure of a group of companies or how their company holds its assets through to the negotiated release or deferral of liabilities and to a statutory restructuring under the Corporate Insolvency and Governance Act 2020. Formal restructuring, which in principle allows certain classes of creditor to receive enhanced returns over others are very rare and tend to be the preserve of very large and/or complex corporate groups.

Corporate debt restructuring involves compromising and reducing the overall levels of debt by agreement, or extending the period over which a debt is paid. This can be done in a number of ways from informal time to pay agreements with trade creditors, to highly technical cross class cram down restructurings.