5. Alternatives to Liquidation PDF

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Alternatives to Liquidation (Business Law and Practice – p315 – 322) Administration What is it?  An independent insolvency practitioner (an administrator) is brought in to run, reorganise, and possibly sell the company as a going concern.  Administrators have a wide range of powers including: o Removal and appointment of directors. o Ability to pay money to creditors and other parties. o Deal with company property, including property which is subject to charges (fixed charges with the court’s permission). How is it  By court order: o Will make an order if satisfied that the company is or is likely to Commenced ? become unable to pay its debts. o The administration order is reasonably likely to achieve the purpose of administration i.e. a better result than liquidation.  By appointment by the directors: o Must give notice to any Qualifying Floating Charge Holders. They can agree or appoint an alternative administrator. o Directors will file a notice of intention with the court and any QFCH, and file a Statutory Declaration.  By appointment by a QFCH. Pros  Statutory Moratorium o IA 1986, Sch B1, para 42 and 43 o Prevents creditors from taking enforcement actions e.g. petitioning for winding up. o Gives administrators breathing space where they can operate free from creditor pressure.  Expertise of an independent insolvency practitioner .  Possible to arrange a pre-pack administration where the business is quickly sold as a going concern.  Cheaper to go straight to administration rather CVA >> Administration if the CVA fails to save the company. Cons

 More costly than a CVA.  Stigma: can damage the company’s reputation in the eyes of its customers etc.  May encourage the company’s debtors to hold on to their debts as far as possible.

Company Voluntary Arrangement  A written agreement between the company and its creditors.  Normally will involve the creditors agreeing to a combination of o Waiting longer to be paid o Accepting part payment of their debt.  Voluntary agreement with the company’s creditors.  Requires the support of 75% of the unsecured creditors to approve the process.

 Useful if the company is merely suffering cash-flow problems e.g. because a key customer has been lost.  Prevents liquidation more cheaply than administration. o Less formalities. o Do not have to pay administrators fees.  Creditors are likely to be paid more than they would be if the company went into liquidation because the process is simpler and less expensive than administration or liquidation.  Moratorium only available for small companies (s328 CA 2006)  Directors remain in control of the company.  No guarantee administration/liquidation may be avoided. May just delay the inevitable.  Creditors are unlikely to be paid in full.  Voluntary, so may not be possible to agree.  Do not get the benefit of the expertise of an independent insolvency practitioner to rescue the company.  No moratorium....