The ever increasing commercial and financial restrictions being placed upon companies is adversely affecting the growth and indeed survival of many businesses.
Banks are reluctant to lend on an unsecured basis and may well ask for personal guarantees against the family home
Companies are consistently struggling to pay their own accounts due to slow paying debtors.
A creditor petitioning for the liquidation of a company will result in the intervention of the Official Receivers Office. The liquidator has a duty to inspect and investigate the affairs of the company and report any offence committed under the Company Directors Disqualification Act 1986.
Can the company pay its debts as and when they fall due?
Would assets be sufficient to pay liabilities in a liquidation?
Should the answer be NO to either question this is the point at which the company has established itself as insolvent.
To continue to obtain credit is ‘wrongful trading’.
Directors need to be aware that they are ‘jointly and severally’ responsible for the debts and are unable to claim protection under the ‘Limited’ status (sections 213 & 214 Insolvency Act 1986 wrongful and fraudulent trading)
Directors that have personal guarantees pledged against company loans must consider their options when the company’s future is not secure. This must be done before the bank exercises its right to litigate and obtain a charging order against a Director’s property.
A Statement of Affairs is produced and circulated to all creditors who will have an opportunity to vote for or against the proposal. Unless a 100% dividend is on offer the duration of the agreement will be for 5 years.
The advantages of a CVA are beneficial to all parties.
- Creditors will receive more than they would in a liquidation.
- The company is given time to trade through the problem without fear of litigation.
- The Directors continue to control their business.