Voluntary insolvency

There are several different possible procedures which may be followed on discovery of a company’s insolvency. Voluntary arrangements are intended as a rescue measure for an insolvent company and are an alternative to liquidation. A Company Voluntary Arrangement or CVA is a relatively straightforward and cheap procedure, and is a means of voluntary insolvency. The directors of the ailing company will firstly make a written proposal to creditors, indentifying an insolvency practitioner. The insolvency practitioner will look at the proposal and make a recommendation to the court on its viability. The practitioner will then usually call a meeting of members and creditors who will vote on the proposal. A majority of more than 75% is required for the proposal to be implemented.

Liquidation is the most common procedure used on realisation of a company’s insolvency, or imminent insolvency. Voluntary liquidation comes in two forms: member’s voluntary liquidation and creditor’s voluntary liquidation. Members’ voluntary liquidation is only available to solvent companies; if a company is not solvent then a creditors’ voluntary liquidation should be used instead. In members’ voluntary liquidation, the directors must make a full statutory declaration of solvency, in which they must state that they have made a full inquiry into the affairs of the company and that the company will be able to pay all its debts within twelve months. Following this a liquidator is appointed who will realise the assets of the company and distribute them in accordance with the statutory order.

If you would like to obtain legal advice on a company’s insolvency, voluntary procedures available or other related information, Contact Law can put you in touch with a local specialist insolvency solicitor free of charge. So, if you have any questions or would like our help in finding local insolvency solicitors please call us on 0800 1777 162 or complete the web-form above.