Insolvency & Restructuring

The directors cease to have control of the company on liquidation, which passes to the liquidator on appointment. The directors will, however, be expected, among other things, to deliver up the company’s property (including its books and records) and to co-operate with the liquidator’s requests for information and assistance. Failure to comply may well result in court action by the liquidator.

As with a company in liquidation, the administrator takes over control of the company's business and assets from the company's directors on appointment. In particular, the directors may not exercise any powers which could interfere with the exercise of the administrator’s powers without the administrator’s prior consent. The directors will also have the same duties in respect of the delivery of the company’s assets and the provision of information pertaining to its business and affairs as with a liquidation.

A company voluntary arrangement (CVA) is effectively an agreement reached with its creditors that allows a company to pay those creditors either all or a proportion of what they are owed over a fixed period of time (often up to five years). Each CVA is bespoke to the relevant company’s financial position with a view to providing an acceptable dividend outcome to its creditors and can involve protracted negotiations with those creditors before it is approved.

The approval of a CVA proposal (or any subsequent modification of it) by the company's creditors, in general, requires a vote in favour by at least 75% (by value) of the creditors who vote on it (and is not approved if more than 50% by value of those voting against it are creditors who are “unconnected” with the company for the purposes of voting).

Once approved, the CVA binds all the unsecured creditors of a company who were entitled to vote on the CVA proposal, even if they voted against it. Like the company, the creditors will be required to abide by its terms. 

The short answer is that it depends on the status of the debt and you should seek legal advice on your position before you do so. The presentation of a winding-up petition in circumstances where, for example, the company disputes the petition debt on grounds that are substantial (i.e. more than frivolous), or where the company is not insolvent, could result in court action against you, including the obtaining of injunctive relief and incurring liability for the company’s legal costs.

This would need to be looked at on a case-by-case basis.

Once your company is deemed insolvent, the focus of your duty as a director is to act in the best interests of the company’s creditors. In this situation, the directors must seek to protect the value of the company’s assets and also ensure the creditor's position does not worsen.

You should act carefully and seek specialist advice at the earliest opportunity.

The presentation of a winding-up petition can have catastrophic consequences for the company, including the freezing of its bank accounts. The directors should, therefore, seek urgent insolvency advice not only in respect of the company’s position and the options available to it but also consider obtaining advice in respect of their own personal position.

The reality is there is no satisfactory answer. The actions of directors may be scrutinised at a later date by a liquidator or administrator if appointed, which could result in personal claims against the directors (including for wrongful trading).  

The role of the administrator is to achieve one of the statutory purposes of administration, namely:

• The rescue of the company as a going concern (which is rarely achieved);
• A better result for the company's creditors, as a whole, than would be likely if the company were wound up (without first being in administration); or
• The realisation of the company's property to make a distribution to one or more secured or preferential creditors.

The administrator will look to see which of the statutory purposes is achievable and will set out the objectives and strategy of the administration in a set of proposals which are then circulated to creditors within 8 weeks of the start of the administration for them to vote upon.

Whilst the liquidator will undertake various statutory and reporting functions as part of their appointment, their primary role will be to realise the assets of the company and to investigate its business and affairs and the conduct of its directors in order to determine what (if any) claims may be brought to add to the funds available for creditors and, where there are funds to do so, to make distributions to the creditors in accordance with the statutory order of priority.

Time is likely to be of the essence so you should seek urgent legal advice in the event an administrator or liquidator threatens proceedings against you.