Insolvency FAQ’s For Advisers
Following the success of our previous FAQ’s article this article is intended to cover the questions raised to advisers (such as accountants and bookkeepers). However, to read our original FAQ’s article please click on this link, MORE FAQ’S.
My Top 10 Insolvency FAQ’s from Advisers are…
1. My client is concerned that they will be disqualified from being a director of a limited company, what can I advise them?
Directors of limited companies are only disqualified from being directors if they have committed some form of wrongdoing when running their Company. This usually involves wrongful or fraudulent trading of some sort but actions are usually only brought against directors if there is quantifiable evidence that shows a specific detriment to the creditors as a result of the director’s actions.
Directors are not automatically disqualified if their Company becomes insolvent and is placed into an insolvency process.
2. How quickly can a company be placed into insolvent liquidation?
A company can be placed into liquidation within 2 weeks of the instruction to the Insolvency Practitioner (“IP”) providing the shareholders agree to receiving short notice of the creditors meeting, failing which, a typical liquidation is achieved within approximately 3 weeks to 1 month from instruction. For full details regarding this process, click this link, INSOLVENT COMPANY LIQUIDATION
3. What happens at a creditors meeting when a company is placed into Liquidation or Administration?
Directors and shareholders continually have concerns that they will be interrogated by creditors at creditor meetings however the reality is that 9 times out of 10 no creditors even turn up. If creditors do turn up, they are given information prepared for the meeting then they are asked if they have any questions regarding that information. No personal questions are allowed but typically the topics covered are:-
• When did the directors know that the company was insolvent and what has happened since this date?
• What were the reasons for the failure of the company?; and
• What are the directors doing going forward?
It should be noted that the purpose of the meeting is to vote on the resolutions put to the creditors and therefore, whilst creditors are given the opportunity to ask questions, they must do so with the purpose of helping themselves establish how they wish to vote.
4. I’ve realised that my client’s company is insolvent, what should I advise them now?
Firstly, you should advise them to contact us for specialist advice as we have the experience and qualifications to advise them fully. However, the main areas of caution are:-
• They should not obtain credit for any supplies which they cannot pay for.
• Any trading conducted going forward should only be done if they can make a profit.
• They should not prefer any creditors by paying them in priority to all other creditors.
• No customer deposits should be taken if the orders cannot be completed; and
• Every effort must be made to cut costs.
5. My client’s Company is approaching insolvency, but the business appears to be good, what are the main points I can advise my client to help them turn things around?
Like always, the best form of business recovery advice is to help them find ways to increase sales and cut costs therefore this should be your first point of call. It is also advisable to complete a cash flow statement to work out if the business is viable going forward based on realistic forecasting. Other company rescue methods may involve restructuring or raising finance but of course if you are unsure, you can ask us and we can give you the advice you need to fully inform your client.
6. My client has received a Winding up Petition, what can they do now?
The general options regarding petitions are to:-
• Seek to dismiss it (by either paying it in full or by proving the debt is not due).
• Seek to adjourn the hearing for the petition (usually to buy time to pay the petition debt). Or
• To propose an Administration to stop the petition and close down the company.
For full details regarding Winding up Petitions click this link, WINDING UP PETITION ADVICE.
7. Why should my client pay an independent IP to place their Company into Creditors Voluntary Liquidation (“CVL”) as opposed to allowing their creditors to wind up the Company by Compulsory Liquidation (“CWUP”)?
Firstly it is worth mentioning that an independent IP can obtain their fees from the company’s assets or funds and therefore are not always personally funded by the directors/shareholders. However, the main benefits of choosing to voluntarily instruct an independent IP are:-
• They have more control over the process
• They are usually not subject to investigations which are as strict as in a CWUP (as a result of there usually being no interview concerning their conduct).
• It can result in a better return for creditors (as a result of the Official Receiver’s fees in a CWUP being quite large).
• A CVL is far quicker to achieve therefore this can result in employees getting paid their entitlements sooner.
8. I have a solvent client with assets, who wants to close their Company, what should they do?
If they have assets or cash balances of more than £25,000 then the way to close their company to get them the most amount of money back as shareholders would be through a Members Voluntary Liquidation (“MVL”) which can only be done by a licensed IP. This is because of the tax benefits available through this process. For more details regarding MVL’s, click on this link, SOLVENT LIQUIDATIONS.
9. What is so controversial about Pre-Pack Administrations (“Pre-Packs”)?
Pre-Packs can be considered controversial as a result of open marketing usually not being completed for the businesses which are being sold. The creditors are therefore not usually informed until after the sale is complete. It can also be considered controversial because often the sales completed are back to connected parties. For more details regarding this service click on this link, PRE-PACKS.
10. Can I be paid my fees shortly prior to my client placing their company into Liquidation or Administration?
It is not advisable to receive payment for your fees from company funds shortly prior to their insolvency case as this may be considered a preference payment. However, you can receive your payment from anywhere else if another party is prepared to pay these.
Alternatively, you could complete further works for the IP, and his administration of the case (if required) otherwise our belief is that by retaining a client going forward, you are able to recoup your fees by way of future funds.
I hope this has been useful for you all, if you require any further information or have a question not covered in this article then please feel free to contact me on 0800 612 6197 or review the rest of this site.