Forced Insolvency: Administrative Receivership & Compulsory Liquidation
Forced Insolvency Arrangements
Administration (Administrative Receivership)
This is when a business has no other option but to be placed into insolvency for the assets to be sold. The initial insolvency period is called Administration, and a licensed Insolvency Practitioner (IP) will be appointed (normally by a lender or at the request of a creditor) as the first step on the insolvency ladder. Their role is to help turn the business financial health around, but often the case is that a recovery expert is brought in too late to save the business when it is no longer a going concern, resulting in the assets needing to be sold.
The IP will assess the volume of debt, number of creditors, balance sheet and cash flow forecasts and the liquidity of the business. If the business has an order book of sales or an attractive brand, the IP may try to find a buyer for the business (in whole or in part), or sell the brand, after a valuation has been made of the assets.
Compulsory Liquidation
This is a court driven process and often referred to as “the lawyers process”. Where there is no way for the business to be saved and it is liquidated. If there is no other option than to end the business, the appointed IP/solicitor/accountant will implement insolvency proceedings and a Winding-Up Petition may be submitted to begin formal insolvency and liquidation, although this is not mandatory. Any financial assets are sold off and creditors are paid from any residual assets in a specific order.
We can assist a company in challenging any debts made subject to such proceedings, in specific circumstances, and can take injunctive proceedings against a creditor making such a petition where those specific circumstances apply.
Informing directors about insolvency
Normally the IP or appointed expert will help communicate the insolvency position with the directors. This can lead to disputes arising and is especially complex when business pensions are involved (especially when the pension scheme owns the business premises), or family business interests and joint assets are involved, where, say, directors are married, or several members of the same family are directors of the business.
We can provide full advice on whether the matrimonial home, usually a couple’s largest asset, can be included or excluded from an insolvency and we can also advise upon the likely treatment of a couple’s shared assets, where divorce proceeding shave been started.
At Lawson West we can advise you as to whether any assets can be assigned to a pension, or whether any transactions are likely to be unravelled by the IP investigating the same, due to them being excessive or where there is an excluded arrangement in place.
We advise IP’s as to the lawfulness of any transactions to assist with their investigations.
Employees in insolvency
Employees rights in administration is usually determined within 14 days of the process beginning. We can provide advice in relation to employees’ salary arrears, whether they have remained as employees or have been made redundant.
We will advise upon the sums that could potentially be recovered by employees, such as PILON payments, holiday pay, redundancy payments, occupational pension contributions, and what cannot be recovered. In addition, we will fully explain which of the employees can become preferential creditors and where the National Insurance Fund fits in.
there are strict legal guidelines covering how employees are to be treated before, during and following an insolvency action, these include communication methods and protected TUPE transfer rights during business sales. At Lawson-West we have a large employment law team who can advise on the impact on all employees and correct procedure.
Not only can we advise on the process of insolvency procedures, we can help to identify where changes could be made and discuss the legal implications and solutions of each area of insolvency law, delivering to you a plan to help your business communicate activities to all employees.
