Unfortunately, from time to time, we may face financial difficulties in our private or business lives. These problems may result in the threat or instigation of insolvency proceedings from creditors. Clarke Barnes are able to advise on dealing with creditors, and how to defend, where appropriate, a statutory demand, winding-up petition or bankruptcy. Our solicitors are well versed in dealing with bankruptcy trustees, administrators and receivers and are able to refer clients to insolvency practitioners with suitable experience and expertise should circumstances require.
A company is considered to be insolvent under English law if it is unable to pay its debts. There are two tests for corporate insolvency:
– The cash-flow test: is the company currently, or will it in the future, be unable to pay its debts, as and when they fall due for payment?
– The balance sheet test: is the value of the company assets less than the value of its liabilities, taking into account as-yet uncertain and future liabilities?
The following consequences of corporate insolvency may apply:
– Increased risk of personal claims and directors’ disqualification
– Heightened risk of formal insolvency procedure
– A winding-up petition may be issued against the company by a creditor who has served a statutory demand for payment – this may result in the company being placed into compulsory liquidation (any disposal of assets will be void once a winding-up petition has been presented)
– Withdrawal of support from suppliers
– Customer transactions may be reviewed and reversed – if an insolvent company is subsequently placed into liquidation or administration, any transactions the company entered into for a period of up to two years before the insolvency procedure began can be reviewed and/or reversed on application by the appointed insolvency practitioner
What can be done?
– Administration: primarily aimed at rescuing companies in financial difficulties
– Voluntary Arrangements: requires sufficient creditor support
– Receivership: an enforcement right is granted to a secured creditor which typically results in the company’s business being sold and the company itself going into liquidation
– Liquidation: results in the company ceasing to trade and which a liquidator collecting in the company’s assets and distributing the resulting realisations to the company’s creditors so as to satisfy, as far as possible, the company’s liabilities.
A winding up petition is a Court order which forces an insolvent company into compulsory liquidation in order to repay creditors. A winding up petition can be issued against any company that has an undisputed debt in excess of £750.
If you are being threatened with a winding up petition by a creditor (whether it is undisputed or not) we recommend immediately seeking legal advice. Clarke Barnes have often represented clients threatened with a winding up petition and have successfully reached an agreed resolution without the petition being issued.
If a petition is issued, you will have 10 days from the date of service to stop the petition being advertised. Once a bank or financial institution is informed of a petition being issued, bank accounts are normally frozen. If the debt is disputed we can assist on applying for an injunction from the Court to stop the petition being advertised. We can also offer guidance in negotiating additional time from the creditor before the petition is advertised to enable a resolution to be reached.
It might be that by the time legal advice is sought the petition has already been advertised. In these circumstances we can still assist in obtaining a Court validation order allowing the company to access the monies in the frozen accounts for certain ordinary business overheads or to restructure the debt.
Clarke Barnes can also assist in defending the petition in the case of a genuine dispute. A defence to any petition should be filed at least 5 days prior to the hearing of the petition. The Directors of the company will need to demonstrate the following in order for the Court to allow the petition to be defended:
– The relationship between the company and the petitioning creditor;
– Why the debt is disputed;
– Any other grounds on which the petition is opposed;
– Details of any other proceedings relating to the debt; and
– Evidence that the company is solvent including annexing management accounts and bank statements.
There is also the option of entering into a Company Voluntary Arrangement, subject to the permission of the Court. Clarke Barnes are able to liaise with insolvency practitioners and can advise on whether entering into a CVA is appropriate for your company.