Morgan Russell Solicitors

Insolvency

Insolvency

Company Voluntary Arrangements

What is a company voluntary arrangement (“CVA”)?

 A CVA is a procedure that allows a company:

  •  To settle debts by paying only a proportion of the amount that it owes to creditors.
  • To come to an arrangement with its creditors over the payment of its debts.

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Insolvency

What is Insolvency?

Insolvency is legally defined as:

  • A company is insolvent (unable to pay its debts) if it either does not have enough assets to cover its debts (i.e. the value of assets is less than the amount of its liabilities), or if it is unable to pay its debts as they fall due.
  • An individual is insolvent if he or she is unable to discharge his or her debts as they fall due.

Once a company or individual has become insolvent, several courses of action are open, sometimes resulting in a return to solvency.

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Directors - Insolvency Considerations

Directors of companies in financial difficulties need to consider a number of issues.  As soon as directors are aware that a company is in financial difficulties, they should seek external advice.

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Companies Act 2006 - Fraudulent Trading

If any business of a company is carried on with intent to defraud creditors of the company or creditors of any other person, or for any fraudulent purpose every person who is knowingly a party to the carrying on of the business in that manner commits an offence.

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Wrongful Trading

Of all directors’ duties regarding insolvency wrongful trading can be the most worrying for directors. Wrongful trading also applies to shadow directors.

If a company goes into insolvent liquidation and at some point before the commencement of the winding up of the company a director knew or ought to have concluded that there was no reasonable prospect that the company would avoid going into insolvent liquidation the courts may declare that the director is liable to make a contribution to the company’s assets.  Any contribution is paid into the pool of assets available for distribution to the creditors.

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