Commonly Asked Insolvency Questions
We have pulled together answers to the most common questions we are asked by our clients about Insolvency and related topics.
We hope you find them useful, for further more detailed information about any of the topics below contact one of our team on 07889 363.321 who will be ore than happy to help.
General Insolvency Q&A's
1. What is Insolvency?
If a company or individual cannot pay their debts as and when they fall due, or have greater liabilities than assets, they are deemed to be insolvent and there may be an appropriate insolvency procedure that can help (for companies; Liquidation, Administration, Company Voluntary Arrangement, and for individuals; Bankruptcy or Individual Voluntary Arrangement)
2. What is an Insolvency Practitioner?
An insolvency practitioner is the person appointed to deal with the insolvent company or individual and will act as office-holder in Administration, Liquidation, Bankruptcy or Voluntary Arrangement.
3. What is Liquidation?
Liquidation is a legal process where a Liquidator is appointed to wind up the affairs of a limited company. The assets and property of a company are turned into cash and redistributed to creditors and, in the case of a solvent liquidation, shareholders.
4. What is compulsory liquidation?
The liquidation procedure that begins with the making of a Winding Up order through the Courts. Directors will have no control over the timing of this procedure and it is extremely rare for any part of a business to be rescued once it has entered compulsory liquidation. Directors are encouraged to contact one of our practitioners to discuss whether a voluntary liquidation will help achieve their objectives in a more planned and orderly manner.
5. What is a winding up order?
An order made by the Court to place the company into compulsory liquidation following the presentation of a petition, usually by a creditor of the company. Either the Official Receiver or an Insolvency Practitioner will be appointed to deal with the liquidation process and the business ceases to trade immediately.
6. What is a Creditors Voluntary Liquidation?
This is the most common type of liquidation process used in England & Wales. It occurs when 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 the company has greater liabilities than it does assets.
7. What is a Members Voluntary Liquidation?
The shareholders of a company which has enough assets to pay all the debts of the company (ie is solvent) can use this type of liquidation. It is a tax efficient method of distributing the surplus cash in a business back to its shareholders (or members).
8. Can a company be rescued without liquidation?
There are a number of recovery options; administration and creditors voluntary arrangement, which can be discussed with our insolvency practitioners.
9. What is business administration?
A term applied where a company has entered into administration. It is an insolvency procedure designed to protect a company from its creditors whilst operational changes are made or it is restructured to enable it to continue as a going concern and/or be sold. A licensed Insolvency Practitioner must be appointed to manage the companys affairs during administration.
10. What is a pre-pack?
This refers to a pre-packaged sale of a business immediately after the company is placed into administration (ie. A deal that has been lined up ahead of the company entering administration).
It is a procedure used by a licensed insolvency practitioner where the value of the business may be eroded by either a period of cessation of trade or by the company entering into administration. It is a highly regulated area of law and can only be used where the highest value for the business is achieved and it is the best possible outcome of the administration. It usually saves a higher number of jobs than an alternate procedure.
If you are a director who wishes to explore this option, it is essential that you contact us early as it is necessary to allow enough time ahead of the administration to undertake all of the necessary work to ensure a pre-pack is the most suitable option.
11. What is a Voluntary Arrangement?
A Voluntary Arrangement can be a Company Voluntary Arrangement, Partnership Voluntary Arrangement or Individual Arrangement and is a legal procedure which enables a company, partnership or individual to reach a binding agreement with its creditors about how its debt is to be repaid. It requires 75% of all creditors to agree to the terms of the arrangement which will then bind 100% of creditors.
12. What is Bankruptcy?
Bankruptcy is the administration of the affairs of an insolvent individual by a Trustee. The Trustees job is to realise the bankrupts assets and distribute them in a prescribed order of priority. Bankruptcy commences on the making of a Bankruptcy Order by the Court.
13. How is a company dissolved?
The Companies Act allows dormant or non-trading companies to be dissolved and removed from the Companies Register. However, dissolution does not terminate contractual relationships and this procedure should not be used as way to avoid insolvent liquidation. Any potential claims against the company can carry forward for 20 years, with the company being reinstated to the Register and then formally liquidated.
Business Owner / Company Director Q&A's
1. How can I put my company into liquidation? (same as how to wind up my company or how to liquidate my company or how to wind up my business)
A director will need to convene a meeting of the shareholders of the company, of which 75% of the shareholders must approve the resolution (see company voluntary liquidation). You will need to assistance of a licensed insolvency practitioner to take you through the appropriate legal procedure.
2. How much will it costs to wind up a company?
The costs to wind up a company will vary depending on the issues needing attention in each case. Please speak to one of our insolvency practitioners to get an estimate.
3. Who pays to wind up a company?
In a creditors voluntary liquidation the cost to place the company into liquidation may be paid from assets if sufficient. Liquidators fees post appointment can only be drawn from asset recoveries.
4. Am I liable for company debts?
The benefit of a limited company provides the director with protection against company debts. However please contact one of our insolvency practitioners if you have signed a Personal Guarantee over a debt of the company.
5. Will my house be at risk?
Your house may be at risk if you have guaranteed company debts. If this is the case taking early advice from our insolvency practitioners will optimise the options available to you.
6. After liquidation can I still be a company director?
It is possible for you to continue to be a company director as the fact you have were a director of a company in liquidation does not automatically prevent you.
7. Will I have to attend court?
A creditors voluntary liquidation is an out of court procedure allowing the director to control the timing and appointment of an insolvency practitioner. However a compulsory winding up is made through a Court Order presented by a creditor which you may wish to attend.
8. When should the company stop trading?
A company will cease to trade when the director convenes the relevant shareholder meetings to place the company into creditors voluntary liquidation, or on the presentation of a winding up petition. In general, you ought not to continue to trade if there is no prospect that you will be able to pay your debts as and when they fall due.
9. When should I seek advice?
Advice should be sought as soon as you become aware that the company may not be able to pay its debts as they fall due. We offer a free confidential consultation to that you can obtain the right advice as soon as possible.
10. Can I pay family creditors?
Associated creditors paid in the 2 years prior to the liquidation may be requested to repay these sums to the liquidator.
11. How long does a liquidation last?
There is no definitive timescale the liquidator remains in office until all the assets have been recovered.
12. Can I start up a new limited company immediately?
It is possible for a director to set up a new company although there may be some restrictions please speak to one of our insolvency practitioners for more information.
13. Will my Personal Guarantee be called upon by the bank?
It is usual for the bank to contact directors upon the liquidation of their company; however early negotiations with the bank will leave the director more options.
14. Will my employees get paid?
Employees may claim for arrears of wages, holiday pay, redundancy pay and pay in lieu of notice from the Redundancy Payments Office, although certain restrictions will apply. Payment is usually made within 6 weeks after the date of liquidation.
15. Will I have to face the company creditors?
In a creditors voluntary liquidation a creditors meeting is convened to which creditors are invited to attend. Please contact us if you have concerns and our practitioners can advise you accordingly.
16. When do my director duties cease?
Directors duties cease at the date of liquidation although their co-operation is required by the liquidator.
14. Is the liquidation of the company advertised?
Prior to the liquidation notice is placed in the London Gazette to notify creditors of the pending meeting.
15. As a director can I purchase company assets?
A director may personally purchase company assets from the company or the liquidator providing they are purchased at full market value.
1. My company has gone into administration, what does it mean/what should I do?
As an employee of a business that is now in administration, you will be contacted by the firm of insolvency practitioners dealing with the case. As an employee, you have statutory protection for your arrears of wages, holiday pay, redundancy and notice pay. The administrators will advise you whether they require your services once they have devised their strategy (ie is part of the business going to be sold or perhaps there will be a restructuring process).
You can find more information in relation to your position at The Insolvency Service.
2. I have been made bankrupt does my employer get told of the bankruptcy?
Your employer will usually only be told of your bankruptcy if you fail to comply with an Income Payments Agreement. The trustee can then make an application for these funds to be deducted directly from your salary. Please note that a bankruptcy may affect employment in certain circumstances and advice should be sought.
1. I am a creditor of the company how can I recover my money?
Initially creditors can issue a statutory demand for payment if the debt which, if ignored by the company, can lead to the issuing of a petition to wind up the company (see compulsory liquidation)
Sole Traders Q&A's
1. I am unable to pay my creditors - is bankruptcy my only option?
No you may be able to come to an informal agreement with your creditors or use a voluntary arrangement (see above) as a formal arrangement and alternative to bankruptcy.
2. How can I declare myself bankrupt?
You may petition for your own bankruptcy at your local County Court. Application forms can be obtained directly from the court or the Insolvency Service website.
3. Will I lose my home if I declare myself bankrupt?
If your property has equity this must be realised for your creditors. We are happy to advise you of the options available to you.
4. Can I continue as a sole trader?
Continuing as a sole trader is difficult as you are unable to obtain credit of more than £500 during the term of your bankruptcy. However it may be possible with the agreement of your trustee.
5. Can I continue to work?
Bankruptcy will not stop you from being employed although you may be requested to pay a voluntary sum into your bankruptcy if you have surplus funds.
6. Can I have a bank account?
You may have a bank account that does not have an overdraft facility.
7. How long does bankruptcy last?
You will be in bankruptcy for the statutory period of 12 months, although this can be varied on application by the Official Receiver. Bankruptcy restrictions remain in place during this time.
8. How long will my trustee be in office?
Your trustee will remain in office until all of your assets have been realised for the benefit of creditors.
9. Will my landlord told of the bankruptcy?
There is usually no need to advise your landlord of your bankruptcy unless you owe him money.
10. Can I challenge the bankruptcy order?
A bankruptcy order can be challenged by way of an annulment on the grounds that it should not have been made in the first place or that the debts and expenses of the bankruptcy have been paid in full.
11. Do I need to attend court?
You will need to attend court to petition for your own bankruptcy. Usually Bankruptcy petitions are heard "ex-parte" which means you will not have to appear in front of the judge.
12. Do I have to face my creditors?
You are not required to attend any meeting of creditors and therefore there is no need for you to face your creditors.
13. After my bankruptcy I am still receiving correspondence from creditors how do I deal with this?
On the making of the bankruptcy order creditors should deal only with the Official Receiver or your trustee in bankruptcy.
14. What debts are written off after bankruptcy?
Debts that may remain in place after your discharge include fines, secured debts and student loans to name but a few. Please contact us for further information.
15. How long will my credit rating be affected?
Your credit ratings will reflect your bankruptcy for a period of 6 years and may affect your ability to obtain future credit.
16. Will my personal belongings be taken?
Personal belongings are deemed exempt assets unless they are of significant value.
For more information about any of the topics detailed above or if you cannot locate the answer to a question you have please contact one of our team on 01275 464 038 for a free confidential review.
I approached liquidation with trepidation not knowing what to expect after having run the business for 30 years. I was led gently through the procedure without embarrassment or pressureDirector of boutique clothing store
25 April 2016
22 March 2016
20 January 2016
- Head Office: Suite 3 Farleigh House, Farleigh Court, Old Weston Road, Flax Bourton, Bristol, BS48 1UR
- Tel: 07889 363 321