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Business Debt

The most appropriate course of action for a business will depend on many factors, including how much pressure the creditors are putting on the business, and if certain changes are implemented, could the business survive. The options available for a business will depend on whether trading as a Limited Company, a partnership or a sole trader.

The team at Castle Hill Insolvency can provide advice to both solvent and insolvent businesses and can offer the following services:

Procedures available to companies

Members Voluntary Liquidation (MVL)
An MVL is a procedure to wind down a solvent company under professional control, in the most tax efficient way possible. We are able to offer an affordable package and will advise on how to deal with matters pre and post the company entering liquidation. In most circumstances, we aim to distribute funds to the shareholders within 7 days from the date the company enters liquidation.

Creditors Voluntary Liquidation (CVL)
A CVL is an insolvency procedure to wind down an insolvent company. In most cases, the business closes down and the liquidator takes control of the company, dealing with the realisation of assets and handling the creditors. In certain circumstances however, elements of the business can be saved. Any debt owed by the company prior to the date of liquidation, will become a claim in the liquidation and if employees are made redundant as a result of the liquidation, they will be paid any notice pay, wage arrears, holiday pay and redundancy pay by the government’s Redundancy Payments Service (subject to statutory limits). This can also apply to directors who are on the company’s payroll.

Administration is an insolvency process that provides the protection of a moratorium, which prevents creditors from talking further action against the company. Administration is appropriate if the business can be rescued but creditors are taking action. In certain circumstances, it may be appropriate for the business to be sold back to the existing management team, minimising any disruption to trade. This procedure is called a pre-pack administration.

Company Voluntary Arrangement (CVA)
A CVA is essentially a contract between a company and its creditors, which in most cases provides for the company to continue trading, whilst making monthly contributions to repay the creditors. There are a number of advantages in proposing a CVA, which include:
A CVA is a legally binding contract between the company and its creditors. Once approved, unsecured creditors are no longer able to take action against the company.
A CVA is usually based on monthly contributions over a 3-5 year period, and can often offer debt forgiveness, meaning the creditors do not necessarily need to be paid in full.
A CVA allows the company the opportunity to restructure, and if redundancies are required for the business to survive, the government (through the RPS), will usually pay the employees their redundancy entitlement (subject to limits) and then claim in the CVA, meaning these funds do not need to be paid in one hit by the company.
If the company has loss making sites, the company may vacate the premises, and any monies due under the lease will fall into the CVA and be paid in line with other unsecured creditors.
The directors retain control of the business and the appointed insolvency practitioner does not have a requirement to submit a report on the conduct of the directors to the Insolvency Service.
Creditors are likely to receive a far greater return through a CVA, compared to the alternative of liquidation or administration, so it is usually in their interests to support the proposal. In addition, they will potentially keep an ongoing client if they are willing to continue trading with the company.
A creditor holding security by way of a debenture dated pre 15 September 2003 may have the ability to appoint an Administrative Receiver over the company. Similarly, a creditor holding security by way of a fixed charge, usually over freehold or leasehold property or land, has the ability to appoint a Law of Property Act (LPA) Receiver. Insolvency Practitioners at Castle Hill Insolvency are qualified to act as both Administrative Receivers and LPA Receivers.

Procedures available to Sole Traders and Partnerships

If trading as a Sole Trader or a Partnership you are not offered the same level of protection as if trading a Limited Company and if you find your business struggling to pay creditors, your personal assets may also be at risk. It is therefore vital that the most appropriate course of action is taken, to not only protect your business, but also your personal assets.

There are various options available to you if your business is burdened with debt which are detailed below:

Individual Voluntary Arrangement/Partnership Voluntary Arrangement (IVA/PVA)
An IVA/PVA is much like the CVA mentioned above in that it is essentially a contract between the debtor and their creditors. A Voluntary Arrangement can be based on any number of things; however, it will nearly always have to offer a better alternative than if the debtor was to make themselves bankrupt. If the business can survive with certain changes, or if the debt is as a result of an unexpected issue or problem, a trading voluntary arrangement can be proposed. This would usually be for a five-year period, with the business making monthly contributions that have been agreed at a realistic level.

If it appears the business cannot survive, then a Voluntary Arrangement can also be based on assets sales, with the debtor retaining some control in proceedings and can often agree with creditors to retain an element of the sale proceeds to enable them to walk away with something. In addition, a Voluntary Arrangement does not necessarily have to offer creditors payment in full and can offer some debt forgiveness.

In most cases when a business is looking to propose a Voluntary Arrangement, HM Revenue & Customs are a creditor. The team at Castle Hill have a number of years’ experience in proposing Voluntary Arrangements and negotiating a fair and reasonable deal with HMRC that suits both the debtor and creditors.

Sometimes, if there are minimal assets and it doesn’t appear that the business can survive, bankruptcy may be the most appropriate course of action. If you are made bankrupt, you are not automatically prohibited from trading but there are a number of restrictions. Whilst bankruptcy is usually considered a last resort, sometimes it is the most appropriate option.

Informal Arrangements
If your business does not have significant debt and perhaps only has a handful of creditors, it might be possible to agree an informal arrangement. Creditors in this scenario would nearly always expect payment in full and would usually expect payment over a shorter period of time, likely to be 12 months.

Should you wish to discuss anything relating to business debt, please contact Steve or Adam on 01626 510020 who will be happy to assist.


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