The Final Process

March 30, 2010 - Author: Tony

There are two constructive steps you can take: consider whether you could negotiate with creditors to pay off what you owe in instalments or to pay a smaller sum which they will accept in full settlement. Or you can enter into what is known as a formal voluntary arrangement. This is a procedure whereby you offer to pay a dividend to creditors in full settlement of your debts. You need to contact an authorized insolvency practitioner, who will require fees in advance to carry out the work. Voluntary arrangements are a formal legal procedure and have proved very effective as a means of avoiding liquidation or bankruptcy.

LIMITED COMPANY

You can seek to wind up your company on a voluntary basis or you may have it imposed on you by the court or under the supervision of the court. And under the 1986 Insolvency Act there are the options of administration and voluntary arrangements. Voluntary winding-up can occur if 75 percent of the members vote for it. The resolution for voluntary winding-up must be having investigated the company’ affairs, that in their opinion the company will be able to pay its debts within twelve months, the winding-up carries on as a members’ voluntary winding-up. However, if the company is not solvent, the winding-up is a creditors’ voluntary winding-up. The difference between the two is that if it is a members’ voluntary winding-up, the members appoint the liquidator. Otherwise, the creditors appoint the liquidator.

The liquidators will normally pay debts in the following order:

? loans and debts which have been secured on a fixed asset
? the costs of the wining-up
? local authority and water rates, income tax, wages and salaries
? loans and debts which have bee secured with a floating charge on the assets, that is, secured on assets in general, not a specific one
? ordinary trade creditors
? shareholders.

If you do not start proceedings to wind up the company on a voluntary basis, currently you may find it forced on you if a creditor, for example, a supplier or your bank, applies to the court for a compulsory winding-up because you cannot pay your debts. In this case, the court will appoint a liquidator, who is usually the Official Receiver. The Official Receiver is an officer of the DTI.

The secretary or director of the company must provide the Official Receiver with a statement verified by affidavit, listing the assets or liabilities of the company. The Official Receiver will call a creditors’ meeting to decide whether to appoint a liquidator or whether the Official Receiver will carry on in that role. The liquidator will pay off the company’s debts in the same order as that outlined for the voluntary winding-up.

The 1986 Insolvency Act strengthened the responsibilities of direction. One of the provisions could mean that a director is made personally liable for a company’s creditors. This could occur if the director has allowed the company to go on trading even though there is no way it can avoid insolvent liquidation (that is, the assets of the business cannot be sold to provide a sufficient sum of money to pay all the creditors).

SOLE TRADER

A creditor may force bankruptcy on you by beginning proceedings for payment of a debt. It is very easy for a creditor to make you bankrupt. If you owe someone more than ?750 they can bankrupt you quickly. And, even if you pay the debt demanded, if the court thinks you have other debts you cannot pay, you may well still be made bankrupt.

PARTNERSHIP

With a conventional partnership you have an added problem to that of a sole trader. Each partner is responsible for all the liabilities of the partnership, regardless of what the profit-sharing arrangements are in your partnership agreement. If you have more personal assets than your partner, it is you and your family who will suffer the most.

With a limited liability partnership, the option open to the management or to creditors are much the same as for a limited company.

WHAT HAPPENS AFTERWARDS?

There is reading suggested in ‘Reference’ for what happens when you have been made bankrupt. You may want to consider joining The Bankruptcy Association, see Reference. If you have been made bankrupt, the chances of you being able to start another business have been severely limited. This may improve once the measures described.

If you are the director of a company which is wound up you may be able to make one more attempt, although under the terms of the Insolvency Act you may be disqualified from being a director after one insolvency, if you are demand unfit to be so. It is not an automatic disqualification, so if you do get a second chance learn from your mistakes this time around.