Alternative to liquidation

Informal arrangement

The company could consider writing to all its creditors to see if a mutually acceptable agreement can be reached. It is advisable to include a timetable of when payments will be made.

Company Voluntary Arrangement (CVA)

This is a formal version of the arrangement described above. The procedure allows a financially troubled company to reach a binding agreement with its creditors about payment of all, or part of, its debts over an agreed period of time.

A CVA can be proposed by the administrator, where the company is in administration; or the liquidator, when the company is being wound-up; or the directors, in other circumstances. Before the proposal is made, an application can be made to court for a moratorium which prevents creditors from taking action against the company or its property for up to 28 days, although if an administrator is in office the company will already be covered by the moratorium arising from the administration.

A CVA cannot be proposed by creditors or shareholders.

Meeting of creditors

When the arrangement has been proposed, a nominee (who must be an insolvency practitioner) reports to court on whether a meeting of creditors and shareholders should be held to consider the proposal.

The meeting decides whether to approve the voluntary arrangement. If 75 per cent of the creditors agree to the proposal, it is then binding and all creditors who had notice of the meeting and were entitled to vote. All creditors who had notice of the meeting are bound by the terms of the arrangement.

If the meeting of creditors and shareholders approves a voluntary arrangement, the nominee (or other insolvency practitioner), becomes the supervisor of the arrangement.

Once the CVA has been carried out, the company's liability to its creditors (who had notice of the meeting of creditors) is cleared. The company can continue trading during the CVA and afterwards. A CVA can be set up when a company is in liquidation or in an administration, as well as at any other time.

Administration

The company or its directors can apply to the High Court for an administration order under which an administrator is appointed by the court to manage the affairs, business and property of the company.

The court can grant an administration order to enable the company to:

• survive, in whole or in part, as an ongoing business
• organise a voluntary arrangement or compromise with its creditors
• get a better realisation of the company's assets than would occur in a winding up

The procedure is managed by an administrator, who must be an authorised insolvency practitioner.