What is an insolvency proceeding?

An insolvency proceeding is a process taken when an organisation or individual are no longer able to meet their financial obligations and pay their creditors when debts are due.

Insolvency proceedings usually take place after less formal arrangements have failed and can be the result of bad financial management, changing market trends, heightened expenses and reduced income.

Compulsory and voluntary liquidations

Insolvency proceedings can begin if the debtor company owe more than £750 and are not disputing the debt. This process is known as compulsory liquidation and will normally start when a statutory demand is issued against you. A winding-up petition will then follow. If creditors are successful, your business will be closed as a result and will disappear from the register in around 8-12 weeks.

You may decide voluntary liquidation is right for you if you expect compulsory liquidation is about to take place. If you’re a company director and you think you cannot rectify the situation, you may decide to begin liquidation proceedings yourself, backed by shareholders.

However, whilst tempting to allow the company to go into compulsory liquidation, the risks attached can include damage to your reputation and to the trust of solicitors and accountants whose services you may require in the future.

Considering a CVL?

You may decide to enter into a Creditors’ Voluntary Liquidation or CVL. A CVL offers benefits to directors as well as company directors. If you receive a statutory demand, this may indicate that compulsory liquidation may be about to occur.

If you fail to repay the amount within this time period, the debt will become official and the creditor or creditors will be able to launch a winding-up petition. If the order is granted by the courts, this will usually mean your company has to close.

Learn more about Compsulory Voluntary Liquidations in our guide.

Are you eligible for a CVL?

Entering into a CVL can help you avoid being accused of unfit conduct and wrongful trading. In a CVL, the interests of creditors are prioritised, and they stand a greater chance of receiving a higher return.

If you wish to enter a CVL, your liabilities must be larger than your assets, and you must have no hope of stabilising the financial position of your company.

At least 75% of your shareholders by share value need to agree to wind-up the business. A licenced IP or insolvency practitioner will be appointed so your assets can be liquidated and the business closed down.

Personal insolvencies

At Irwin and Company, we can also help you if you are facing personal insolvency and the likelihood of bankruptcy is growing. We can advise you on what the best route to take in your situation is, and come to your assistance if you’re interested in entering into an Individual Voluntary Agreement as a less extreme alternative to bankruptcy.

By taking an Individual Voluntary Arrangement, you are creating a legal agreement between you and your creditors to pay back your debts over an agreed period of time.

The alternative of bankruptcy comes with many negatives, however it can give you the fresh start and sense of relief you need away from the burden of debt.

Why we can help

Irwin Insolvency has been helping businesses and individuals with money matters and insolvency for many years and are renowned for the quality of the support and advice we offer.

We are well known for our compassionate, understanding and proactive approach and always aim to find a solution that meets the needs of debtors and their creditors.

We aim to meet and even beat your expectations and do everything in our power to ensure the worst-case scenario doesn’t become a reality.

If you are experiencing financial difficulties and wish to learn more about your options, use our online contact form or give us a call on 0800 2545122.

Contact Irwin Insolvency today for your free consultation

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About the author

Gerald Irwin

Gerald Irwin is founder and director of Sutton Coldfield-based licensed insolvency practitioners and business advisers, Irwin Insolvency. He specialises in corporate recovery, insolvency,
 rescue and turnaround.