Business Rescue & Insolvency - Corporate

Dealing with a clients’ dilemma

There will often be situations where either you or the directors of one of your client company’s identify insolvency and acknowledge that viability is in doubt, but believe that there is a reasonable prospect of survival. In these circumstances it may be inappropriate to commence formal insolvency proceedings. Business rescue may be the option.

However, expert professional advice should be sought to protect the interests of the company, its creditors and the directors personally in these circumstances, this may be done by a business review.

Business Review

A business may be underperforming or experiencing difficulties for a variety of reasons. The problems may well prove to be less serious than initially anticipated. But it is essential that the problems are isolated and the causes identified if we are to first provide you with constructive assistance.

The turnaround specialists at LC Corporate Strategies undertake independent reviews which focus on the critical issues and provide clear recommendations.

LC reviews are tailored to the specific needs of a company's directors, the bank or other lender and are often used as the basis for decisions concerning:

• future viability
• additional or new lending
• corporate reorganisation

One solution from the review may be a Company Voluntary Arrangement (CVA)
Under a Company Voluntary Arrangement, trading continues and a repayment scheme is agreed with creditors.
A CVA, which is legally binding, aims to allow the business to survive as a going concern, or achieve better realisation of the company's assets

What about where any future viability is in doubt and the company may be trading insolvent?

Business rescue may not be suitable in many cases the directors' primary duty is to avoid further potential loss to the company's creditors.

Personal liability of directors

If a director has failed to take "every step" they ought to have taken, with a view to minimising the potential loss to the company's creditors, they could incur personal liability. They may also be disqualified from acting as a director for a number of years.

In these circumstances, a director must;

• Seek the advice of a licensed Insolvency practitioner immediately.
  
• Avoid taking further credit and pay cash for future supplies;
  
• Avoid paying any creditors unless it can be justified as being in the best interests of the company and general body of creditors;
  
• Avoid supplying customers who are also creditors of the company;
  
• Take appropriate action to stem losses, either by ceasing to trade or by commencing formal insolvency proceedings.

There are a number of formal insolvency proceedings that may enable the business to survive.

Administration
Administration is one of the options open to insolvent businesses. It allows the reorganisation of an insolvent company, whilst protecting it from its creditors. As Administrators, we can hold your company together while plans are formulated to rescue the business, maximise asset realisations, or put forward alternative options.
Administration can be initiated by directors and used very effectively as a restructuring mechanism. Where the company has a viable future it provides a breathing space in which proposals can be put to the creditors.

Administrative Receivership
An Administrative Receiver has wide powers allowing trading to continue and preserving the ability to sell the business as a going concern. Even if the business cannot be sold, actions can be taken to enhance asset value prior to realisation

Liquidation
Liquidation is usually the legal closing down of a business which may be solvent or insolvent. Liquidation may occur following a receivership or administration. Alternatively, the company's directors or shareholders may recommend that the company be put directly into liquidation via either a Creditors Voluntary Liquidation (CVL) or a Members Voluntary Liquidation (MVL) or a Court can make a winding-up order for a compulsory liquidation on the petition of a creditor or the company itself.

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