Company Insolvency Jargon Buster
Company Insolvency often involves a lot of legal terminology and jargon that can be difficult to understand. Here we list some of the most common terms used in company insolvency and explain them in simpler terms.
Administration is a legal procedure that is used when a company is no longer able to pay its debts but has the potential to become a viable business again in the future. During administration, all legal proceedings against the company are halted and control of the company is handed over to an appointed insolvency practitioner, who works to save the company and ensure that debts can be paid to creditors via a company restructure, a sale of company assets, or other means.
Administration is often used as a way of facilitating the sale of an insolvent company that has the potential to become a viable business again in the future.
Pre-pack administration is where a company is prepared for a sale and a buyer is found before the company is actually put into administration. This seamless transfer of the business allows the company to continue trading, protects jobs and saves a viable business from liquidation.
Company Voluntary Arrangement
A Company Voluntary Arrangement is essentially a payment plan between a company that is in debt and its creditors. An insolvency professional can assess a company’s financial situation, draft a proposal for the payment of all or part of the debts and negotiate the payment plan with the company’s creditors. This allows the company to continue trading, avoids legal action against the company, and allows the company to pay its debts off in manageable amounts over time.
A ‘creditor’ is defined as “a person or company to whom money is owing.” So if a company owes money to its supplier, the company is the ‘debtor’ and the supplier is the ‘creditor’.
Insolvency is when a company cannot afford to pay its debts. This can take two different forms:
· Cash Flow Insolvency is when a company may have solid assets which have value, but not enough liquid cash to pay debts that are owed.
· Balance Sheet Insolvency is when the amount of money that a company owes exceeds the value of its assets.
If a company has become insolvent, the director(s) should contact an experienced insolvency practitioner immediately to explore their options.
Liquidation is the legal process for closing down a company that must be followed by company directors in line with their legal obligations as directors.
Liquidation could come about for a number of reasons. The company could be solvent and the director simply doesn’t need the company any more. The company could be insolvent and the director has opted to close the company down as there is no way out of its debts, or the closure of the insolvent company could be court ordered.
Time To Pay Arrangement
A Time to Pay Arrangement is a structured payment plan with HMRC which allows a company that is falling behind with its VAT, PAYE and other business tax payments extra time to pay these outstanding business taxes. If a company has fallen behind in its tax obligations due to temporary cash flow problems, but still has the potential to be a viable business, an insolvency professional can assess the company’s financial situation, draft a proposal for the payment of the tax debts and negotiate the payment plan with HMRC. This allows the company to continue trading, avoids legal action against the company, and allows the company to pay its tax debts off in manageable amounts over time.
Winding Up Petition
A Winding Up Petition is a legal action taken by creditors against a company that owes money to them. A Winding Up Petition is the last resort for creditors to claim money that is owed to them and the last opportunity for a company to come to an arrangement for paying its debts before their company is forced into compulsory liquidation.
A Winding Up Petition can be stopped, but it is vital to act fast. If a company has been issued with a Winding Up Petition, the director(s) must contact an experienced insolvency practitioner immediately. The insolvency practitioner will be able to assess whether the company can be saved through the use of company rescue measures.
If you have come across any other terminology in company insolvency that is not explained here and would like more help and advice, simply contact us via telephone, email or online live chat. We will be happy to explain further.
If your company is facing financial difficulties and is struggling to pay its creditors or HMRC, we can provide information and advice to help your company out of its debt problems. Simply contact us for more information and advice. We operate nationwide, so we can meet you at your office on very short notice, in complete confidentiality, to assess your case and advise you on next steps.