Insolvency is when companies or individuals do not have enough funds to cover their debts, cannot pay their debts by their due date, or when their debts are higher than their assets.

The directors should know whether their company is trading insolvently. The appointment of Frazer and Frazer to help is usually the responsibility of the company, the directors themselves or creditors.

As long as limited liability companies have existed there have been attempts to secure a rescue framework to avoid liquidation by reaching an agreement with the creditors. Succeeding law reforms in the United Kingdom have encouraged this rescue culture by introducing means which seek to preserve viable businesses. Frazer and Frazer are able to offer a wide range of options to companies or individuals which provide protection from creditors while formal arrangements can be made allowing the debtors to avoid winding-up proceedings or bankruptcy.

Administration is a formal procedure which is designed to allow a company to continue trading while protecting its assets from the actions of creditors. Its purpose is to achieve one of the following objectives.

» Rescuing the company as a going concern
» Achieving a better result for the company's creditors
» Realising property in order to make a distribution to one or more secured or preferential creditors

Administration begins with the appointment of one or more Insolvency Practitioners. This can be done out of court by:

» The holder of a Qualifying Floating Charge - usually a bank;
» The directors; and
» The company, by resolution of the shareholders

Administration can also be initiated by the court, usually on the application of the directors of the company or unsecured creditors. The Administrator will take control under the order but may allow the directors to retain some management functions. Within ten weeks of appointment, the Administrator circulates proposals for the company and holds a creditors' meeting to seek approval of the plan. The proposals may include a Company Voluntary Arrangement (see definition below). The whole process should be completed within twelve months, unless an extension is agreed.

This is when the directors of a company, or its Administrator, make proposals to the company's creditors for a release from its existing debts, coupled with a plan by which creditors will receive some, or all, of the amounts due to them over a specified period of time. A CVA allows an underperforming business the chance to trade out of its problems. To be effective, the proposals must be approved by more than 75% of those creditors who vote on them. If approved, the proposals bind all creditors.

The main duty of an Administrative Receiver is to recover assets for the benefit of the lender to whom he is responsible, for example a bank. The Administrative Receiver will not be responsible for making payments to ordinary unsecured creditors.

This is the 'end of the line' for a company. The assets of the company are sold by the Liquidator, and turned into cash to pay creditors.

In a Creditors Voluntary Liquidation (CVL) the shareholders themselves decide to close the business down and appoint a Liquidator.

A petition can be presented to the court for an order to wind-up a company. This means that the company will be placed into liquidation but unlike voluntary liquidation, compulsory liquidation involves investigation by the Official Receiver and is usually more time-consuming and expensive. Most petitions are presented by creditors. HM Revenue & Customs frequently takes such action when liabilities for VAT and PAYE are unpaid.

Normally this applies when the proprietors of a company wish to unlock their capital and retire, or when a subsidiary within a group has outlived its usefulness. In an MVL, the shareholders resolve to appoint a Liquidator and all liabilities of the company (including the expenses of liquidation) should be settled within 12 months. The assets remaining after paying all liabilities are then distributed to the shareholders. MVL is also the normal route in a company re-organisation so as to benefit from tax exemptions, income, capital gains and corporation tax (Section 110, Insolvency Act 1986). .

» To advise and establish a strategy
» To act upon that advice professionally
» To look after your interests
» To act impartially at all times
» To follow the ethical guidelines as set out by the Office of Fair Trading.
» To appoint a liquidator.

Jobs may be saved if the business, or part of it, is sold as a going-concern. If there are job losses, then employees may claim for redundancy, holiday pay, pay in lieu of notice and unpaid wages, where applicable. They can receive up to 8 weeks unpaid wages, but the Government will only pay up to a limit set annually by law. Claims are paid by the redundancy payments section of the Insolvency Service which in turn becomes a creditor of the company.

In liquidation, the directors' role is limited to certain statutory duties. In administration, they could continue in a management role. Directors are likely to lose their jobs unless there is a chance of saving the company, for example, in a Company Voluntary Arrangement.

When a director continues to trade whilst knowingly and intentionally causing losses to the creditors. If fraudulent trading is proven, the directors may face prison sentences and be called upon to contribute personally to the assets of the company. That is why it is imperative that the Directors of a company seek professional help from a company like Frazer and Frazer at the first sign of problems.

Wrongful trading occurs when a director causes a company to continue to trade when it is apparent that the company is insolvent. The current legislation deems that directors should be aware of the company's insolvency and should take steps to protect the interests of the company's creditors. If wrongful trading is proven, then the directors may be called upon to contribute personally to the assets of the company. That is why it is imperative that the Directors of a company seek professional help from a company like Frazer and Frazer at the first signs of problems to avoid such problems.

The Insolvency Practitioner must obtain the best price for the assets in his control and will often appoint specialist auctioneers and valuers for this purpose. He will also examine sales and asset disposals prior to his appointment, looking for transactions which are detrimental to the creditors generally. The court gives extensive powers to recover assets and to make directors personally liable for irregular transactions.