When a business is struggling financially, it can be difficult to know what the best course of action to take is. Stacks has the experience and knowledge to guide you in the best course of action for your individual circumstances and always aim to get you the best financial outcome.
Insolvency occurs when a company is no longer able to pay its debts (liabilities) when they are due. Company directors must decide what action to take in order to maximise the return to creditors whilst also avoiding the possibility of insolvent trading, which can make the directors personally liable for the company's debts.
Insolvency raises complex issues for both creditors and directors and it is important to seek advice in order to determine the most appropriate strategy for managing the company’s financial difficulties. The law requires that a director must prevent insolvent trading by a company.
One remedy available to the company is to enter into an informal arrangement with its creditors, known as Voluntary Administration. This may offer a good alternative to winding up the company, particularly if there is a chance that its financial affairs can be restructured in a way that will allow it to continue trading in the future.
The law in relation to Voluntary Administration is very complex. A Stacks Business lawyer can provide advice about the best strategies for resolving your company’s financial difficulties. We can advise you about the steps you need to take to enter into Voluntary Administration and the legal ramifications of doing so.
What is involved in Voluntary Administration?
A key feature of Voluntary Administration is that the company directors identify that the company is insolvent or about to become insolvent and deal with the problem swiftly, before their hand is forced. Otherwise a creditor (someone who the company owes money to) could potentially obtain an order from the Court to wind up the company. This would mean that a liquidator would be appointed to sell the company’s assets in order to repay the creditors and the company would no longer be able to trade. A Voluntary Administration could save the company from this fate.
There are a few stages involved in Voluntary Administration including:
- The company appoints an independent administrator to investigate the company’s financial affairs and come up with a proposal to the creditors. During the administration process, the administrator becomes responsible for making decisions about the company such as those in relation to trading and incurring further debts
- The Creditors may choose to reject the chosen administrator and appoint someone else
- A ‘stay of proceedings’ follows, whereby the administrator has time to complete a thorough investigation. At this time creditors may not take any further action or interfere in the process
- The administrator will then make recommendations about the best course of action in order for the company to improve its financial position and thereby pay the creditors. This may be to liquidate the company (sell all its assets) or enter into a Deed of Company Arrangement
Need advice about Voluntary Administration? Call us today