How do Insolvency Practitioners help Businesses in Financial Distress?

Many thousands of businesses are feeling the financial strain. The quicker we are asked for advice, the more we can do to help.

Times are extremely hard for businesses right now, for reasons we are all too aware of. Certainly, the most recent figures from the Insolvency Service for Q2 2022, prove that. There were 5,629 company insolvencies in April-June, up 13% on the last quarter, and 81% more than a year ago – the highest level for 60 years. However, these figures were out of date the moment they were published. We are now in late-September 2022 and we are certainly seeing increasing numbers of enquiries from distressed businesses, ranging from those that are struggling to repay back Bounce Back loans to those that have been hit hardest by energy price rises. How can Insolvency Practitioners help?

In this article we recap on the 4 main insolvency procedures: Administrations and Company Voluntary Arrangements (procedures used to help save companies and turn their fortunes around) and Compulsory and Creditors Voluntary Liquidations. Our first aim is always to see if we can help turn businesses around, of course, and the sooner our advice is sought, the more we can do to help.

What value does the Insolvency profession bring to businesses?

We are not just here to liquidate and wind-up companies that have reached the end of the road. Our industry body, R3, the Association of Business Recovery Professionals, puts it like this:

“The insolvency, restructuring and turnaround profession plays a vital role in the UK economy. It promotes economic regeneration, resolves financial distress for businesses and individuals, saves jobs, and creates the confidence and public trust which underpin trading, lending and investment.”

In their latest survey, published in 2021, R3 found that the Insolvency and Restructuring profession:

Indeed, in c.40% of cases, where Insolvency Practitioners are instructed, liquidation is avoided, using processes such as Company Administrations and Company Voluntary Arrangements.

To quote Colin Haig, the R3 President at the time:

“Resolving the post-pandemic and current financial distress will require government support, creditor forbearance and a legislative framework that gives businesses and individuals time to get back on their feet. But crucially, a successful post-pandemic economic recovery will require the skills and expertise of the insolvency and restructuring profession, to support businesses and individuals to navigate the still-choppy economic waters.”

Administrations and Company Voluntary Arrangements

The key is always the speed with which directors contact us for advice.

If directors have spotted problems early, then rather than an insolvency procedure, our recommendations are likely to include:

However, if a company is already insolvent, it might well be that the numbers show an Administration or Company Voluntary Arrangement is the best procedure.

Administration (rather than a Company Voluntary Arrangement or a Creditors’ Voluntary Liquidation) is used if it is considered that there is at least part of the business that can be sold or salvaged as a viable on-going concern. Administration protects a company whilst a strategy which benefits all stakeholders, in particular creditors, is formulated and proposed to creditors. The Administrator takes over the running of the company from the directors.

A Company Voluntary Arrangement (CVA) is an insolvency procedure that allows a company in financial distress that owes money to enter into an arrangement with its creditors to repay its debts, or a percentage of them over an agreed period of time. From the commencement of a CVA, a company can continue to trade even though it is insolvent.

A Company Voluntary Arrangement is a contract between a company and its creditors that is legally binding on all concerned. If approached in a proper manner it can give an insolvent business breathing space to take control of, and recover, its financial footing. A CVA offers a very flexible approach to an insolvent situation and, therefore, can be tailor made to suit company’s needs.

Above all, a Company Voluntary Arrangement is used if an Insolvent Company has the potential to return to profitability.

Compulsory Liquidations and Creditors Voluntary Liquidations

If, after detailed analysis, there is no prospect of turnaround or recovery, then a liquidation will be proposed. This is why we say the earlier we are contacted the more chance there is of a recovery procedure being recommended than a liquidation. Liquidation may be either compulsory, when it is instituted by order of the Court, or voluntary, when it is instituted by resolution of it’s shareholders. Voluntary liquidation is the more common of the two. According to R3, 55% of insolvencies result in Creditors Voluntary Liquidations (CVL’s) and 7% are compulsory Liquidations.

A CVL is the procedure to wind up an insolvent company where the value of the assets of the company are less than its liabilities and not enough to be able to clear all of the debts. At the commencement of the process, the decision to proceed with a CVL – and therefore liquidate a company – occurs where the shareholders, usually at the directors’ request, decide to put a company into liquidation because it is insolvent. At the end of the process the company is liquidated, and struck off the Register.

Once under way, a CVL is under the effective control of the Liquidator who has a duty of care to the creditors. It is the creditors, who appoint a liquidator of their choice. At this stage, the role of the directors is terminated and the liquidator assumes responsibility for the procedure. The main aim becomes to oversee an orderly winding up of the company, with the interests of the creditors paramount.

Click here to see our guide to CVLs.

What can Insolvency Practitioners do to help?

We are not just here for the compulsory and unavoidable liquidations. We are also here to help companies in financial difficulties to recover and turn things around, whether that is through restructuring and refinancing or through an insolvency procedure such as an Administration or a Company Voluntary Arrangement, which can deliver the breathing space that companies need to get back on the road to recovery.

Our advice is that if you know that the underlying position of your company is weak, then act now. The sooner you contact the Insolvency Practitioners at Antony Batty & Company, the sooner we can recommend a solution. We will talk you through all the options available, so that you know exactly where you are, helping you to make the best possible decisions.

In the meantime, if you need our help and advice in any of our specialist insolvency areas, please contact us or call any of our offices, below, for a FREE initial discussion on the phone or over a coffee, with one of our Insolvency Practitioners.

Also, K&W Recovery, trading as Antony Batty and Company, Thames Valley: