Corporate Insolvency
Corporate insolvency can be an extremely distressing process, with many financial and emotional implications. If you have a corporate insolvency issue that needs to be addressed, then it can be helpful to discuss the situation with a legal expert.
What Is Insolvency?
Insolvency is when the financial state of a company or business is such that it can no longer pay its bills on time. It occurs, therefore, when liabilities (such as outstanding debts, incomplete transactions, or products and services that have not been paid for) exceed cash flow. As such, corporate insolvency is often referred to as 'cash flow insolvency' or 'balance sheet insolvency'.
It must be remembered that insolvency is different to bankruptcy. Insolvency is the name given to the position a company finds itself in when the sum of cash flow is less than the sum of debts. It can be a temporary problem, and may be sorted out without the need for any kind of external intervention. Bankruptcy on the other hand is an official declaration of an irretrievable financial state and has many legal ramifications.
Being insolvent does not necessarily mean a company must declare bankruptcy. If measures to tackle debts are not taken, however, then bankruptcy is often the inevitable outcome. To prevent a company's financial problems reaching this stage, it is important to look at the cause of insolvency and explore ways to salvage the situation, from selling off assets to seeking acquisition by a larger company.
Procedures of Insolvency.
If a company does go insolvent, there are 4 main procedures that may be involved:-
1. Administration.
A limited (Ltd) company can apply to the High Court for Administration. This provides immediate protection from creditors, and is often designed to lift the pressure off a company while a debt-structure plan is devised. All administrations require a Licensed Insolvency Practitioner to act as administrator to help a company make a return.
2. Company Voluntary Arrangement (CVA).
A CVA requires a court order which agrees a plan for the repayment of debts to creditors. This agreement must be satisfactory to all the court-registered creditors, and often includes a lower repayment sum to be paid back over a schedule of 1-5 years.
3. Receivership.
Receivership is a process initiated by a creditor to acquire company assets as a means of covering outstanding debts.
4. Liquidation.
Liquidation is the disposal of all assets and eventual dissolution of the company. The decision to wind the company up can be voluntary (either by Members Voluntary Liquidation or Creditors Voluntary Liquidation), or there can be a petition to the court by someone who is owed money to liquidate the company (Compulsory Liquidation).
Summary.
If you have an insolvency issue that you need help with, be sure to contact a legal expert for advice. They will provide you with more information, and be able to guide you on the correct course of action.
About the Author
Need Employment Solicitors Birmingham? http://pearsonrowe.co.uk/services-for-individuals/employment-solicitors.html
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Gary Storer is Practice Manager for Pearson Rowe Solicitors Birmingham.
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