Administration is a recovery procedure to protect a business and enable its rescue as a whole or in part as a going concern, whilst enhancing the outcome for stakeholders generally. Administration typically assumes that there is a viable business to be rescued.
The process of appointing an Administrator stops all legal actions and places a moratorium around the company. This allows breathing space to restructure a business. An Administration must have a purpose aimed at rescuing the company, enhancing the value of a company's assets, and/or providing a return to creditors.
A Pre-Pack Administration occurs when a company arranges to sell its assets to a buyer, before appointing Administrators (who completes the sale upon, or shortly after their appointment).
An Administrator acts in the interests of a company's creditors.
Administration is a complex area and if it is deemed to be an appropriate tool, a tailored strategy will be proposed to meet the needs of an individual business. For more information on whether an Administration is right for you, contact one of our Insolvency Practitioners to arrange a free consultation. Our Insolvency Practitioners derive satisfaction from rescuing a business and have wide experiences of acting in a large number of business rescues. We will work with stakeholders to provide the best outcome for a company and guide directors through the process.
Most engagements start with the provision of advisory services as we assist directors to identify the critical issues that need addressing and explore the options which are available to the company. At Crowe, we believe in a business rescue culture and where possible, we will seek to avoid a formal insolvency appointment. Where a management team identifies issues early and engages professional support in a timely fashion it is often possible to create and implement a recovery plan with the support of key stakeholders.
The options that are available to a company are usually dependent on the timeframe in which we have to work and this is dictated by the cash position and the level of creditor pressure that the business is facing. During the advisory phase we may assist the directors with cash flow and stakeholder management. We may also work alongside management to reduce creditor pressure, increase understanding among stakeholder groups and negotiate a recovery plan with key stakeholders such as landlords, lenders, HMRC, shareholders and other major suppliers, that delivers a fair and beneficial outcome for all parties.
We will also help the directors consider whether a Moratorium process may help to support the company as it seeks to restructure and turnaround its operations. If stakeholders are unwilling to engage with the company to pursue a consensual solution or there is insufficient time to implement a plan, it may be necessary to consider alternative options that includes a formal insolvency appointment.
Insolvent
Liquidations
Solvent Liquidations and Corporate Simplification
Company Voluntary Arrangements
Administration
A CVA is in essence, a tailored and negotiated settlement with creditors, for a company that is insolvent and facing either liquidation or Administration. The CVA process allows a company to restructure the finances of a company where it may be encountering cashflow difficulties. A CVA often results in a company's debts being repaid (in part or in full) over time, typically over three and five years. A CVA will need to provide a better outcome to the alternatives of liquidation or Administration.
For a CVA, the business of a company must be able to survive. Often a CVA can quickly improve cash flow and it can stop pressure from creditors. Trading forecasts and cash flow projections will need to show that the terms of the CVA can be met, and that the CVA is a viable alternative to liquidation or Administration. A CVA must be approved by a majority of creditors greater than 75% (of those voting). After the CVA is approved, it becomes legally binding on all creditors (even if they voted against it).
The CVA process enables a company's director(s) to retain their executive powers, to continue the business under the supervision of a Supervisor, and continue to pay creditors (via the CVA) from the profits generated from the ongoing business, all for the good of the creditors and thereafter the shareholders.
For more information on CVAs, contact one of our Insolvency Practitioners to arrange a free consultation. Our Insolvency Practitioners derive satisfaction from rescuing a business and have wide experiences of acting in a large number of business rescues. We will provide support to the business to manage the effects of a CVA and work to minimise its impact on trade.
There may be a number of reasons why a corporate entity is no longer required, whether it is an owner managed business where shareholders are looking for an exit strategy, the company has come to a natural end or as part of a larger group structure where an entity no longer serves a specific purpose. Whatever the reason, it is essential that the wind down and dissolution is handled with care and diligence to ensure that risks both personal and commercial can be managed.
A solvent liquidation is known as a Members' Voluntary Liquidation (MVL) and is often used for taxation and restructuring purposes. The shareholders appoint a liquidator who realises the company's assets, ensures there are no unpaid liabilities and thereafter pays the surplus assets to the shareholders. The MVL process provides comfort that a statutory process of advertising for creditor claims, realising assets and distributing any surplus to the shareholders has been followed.
The process is often used as an exit strategy for a company as there are often tax efficiencies when a distribution of capital is made by a liquidator (when compared to a distribution under income tax rules). An MVL can be used when the business of a company has come to a natural end.
In many corporate groups there are entities that are surplus to requirements. Corporate simplification is the process of removing those entities from the corporate structure. The Liquidation of surplus entities can result in a release of capital, allowing funds to be redistributed and a reduced administrative cost. Additionally, professional costs for tax returns and audits can be reduced and tax efficiencies may also be found.
Crowe has extensive experience working alongside management and shareholders to identify and manage the risks inherent in winding down a business, undertaking a project management role if required to ensure a timely and efficient closure.
At Crowe, we have a flexible fee structure, which can be aligned to the level of our involvement in the liquidation or corporate simplification project. If the simplification exercise concerns a number of entities, because of economies of scale, the cost of each individual liquidation can in some instances reduce.
We have broad industry expertise and can draw upon our restructuring and tax teams in the UK and in other jurisdictions, across Crowe’s worldwide network.
We deal with Creditors' Voluntary Liquidations (CVL) and Winding-up by the Court (WUC) when a company becomes insolvent.
Liquidation can be necessary if a company is unable to trade out of its financial difficulties and it is not considered viable in its current form. A CVL is a liquidation process for a company that is unable to pay its debts that is commenced by its board of directors. A WUC takes place when a company is forced into liquidation by the court, upon presentation of a winding up petition.
Directors are under a duty to take all possible steps to reduce the losses of creditors and this may necessitate a need to close down the business of a company and thereafter to place it into liquidation. Whilst the choice of liquidator in a CVL is made by the creditors, the directors nominate a licensed Insolvency Practitioner to assist them. The director(s) choice of liquidator is likely to become the liquidator by a decision of the creditors. It is to the creditors that the liquidator appointed has their primary duty of care.
A liquidator's main function is to identify and realise the assets of a company and pay distributions to creditors (in a set order of priority). It is possible for the directors of a company in liquidation to purchase a company's assets from the liquidator.
There are a number of options available for an insolvent business and Insolvency Practitioners at Crowe have extensive experience in a range of sectors and have acted in a large number of liquidation cases. We provide tailored solutions and understand that placing a company into liquidation can be a stressful time for all stakeholders, from directors, shareholders, employees and clients alike. Our Insolvency Practitioners will provide support to individuals as the effects of the CVL are felt.
The moratorium process was introduced in 2020 by the Corporate Insolvency and Governance Act as a tool to help companies during the unprecendented period at the start of the Covid-19 pandemic. The moratorium process has a narrow scope in terms of utilisation, but could be a very effective tool to help a company navigate through cash flow pressures.
A moratorium throws a protective shield around a company for a minimum of 20 days. In this time a company’s creditors cannot take legal action, recover debts and no winding up action can be commenced or continued. It provides a company with time to address its cashflow issues and put in place strategies to avoid insolvency. The initial 20-day period can be extended with the agreement of all stakeholders.
A moratorium is one of only two formal insolvency processes, where the existing management of the company retain custody and control of the company’s affairs (the other being a Company Voluntary Arrangement). A licenced insolvency practitioner is appointed as the company’s ‘monitor’ to conduct a rolling review of the company’s ability to pay its debts as they fall during the moratorium period. The Insolvency Practitioner must be satisfied that the company is viable as a going concern. The company’s management must ensure that cashflow forecasts indicate that the company will have adequate cashflow to trade and pay the liabilities incurred during the moratorium period.
It is anticipated that a moratorium will act as a gateway to a refinancing exercise, business restructure or Company Voluntary Arrangement.
Moratoriums have been little used to date but, in the right circumstances, could prove a nimble, effective opportunity for directors to avoid formal insolvency and rescue a company.
Moratoriums
Advisory
Areas we can support you