Frequently Asked Questions

Insolvency is a financial state where an individual or company is unable to pay their debts as they fall due. Bankruptcy is a legal process that individuals (not companies) can enter into when they are insolvent. In bankruptcy, an individual’s assets are usually sold off to repay creditors, and most remaining debts are discharged. Companies that are insolvent may enter into other processes, such as liquidation or administration, rather than bankruptcy.

A licensed insolvency practitioner (IP) is a professional authorised to act on behalf of individuals or companies in insolvency situations. Their role includes overseeing processes like liquidation, administration, and voluntary arrangements. They ensure that the process is carried out in compliance with UK law, and they work to maximise returns to creditors while also providing advice and support to the insolvent party.

A Company Voluntary Arrangement (CVA) is a formal agreement between a company and its creditors to repay debts over a set period, typically three to five years. The company continues to trade while making agreed payments to creditors. The CVA must be approved by at least 75% (by value) of the creditors, and once approved, it becomes legally binding on all creditors.

A Members’ Voluntary Liquidation (MVL) is a process for closing a solvent company in an orderly manner. The directors must first sign a declaration of solvency, confirming that the company can pay its debts in full within 12 months. The company’s assets are then sold, and the proceeds are distributed to shareholders. MVLs are often used for tax-efficient distributions when a company has fulfilled its purpose.

Yes, a company can continue trading during administration if the administrator believes it will achieve a better outcome for creditors. The goal of administration is often to rescue the company as a going concern or to achieve a more favourable result for creditors than would be possible through liquidation. The company’s management may continue under the direction of the administrator.

An Individual Voluntary Arrangement (IVA) is a legally binding agreement between an individual and their creditors to repay debts over a set period, usually five years. The individual makes affordable monthly payments based on their financial situation, and at the end of the IVA, any remaining unsecured debt is written off. An IVA provides a structured way to deal with debt while avoiding bankruptcy.

Voluntary liquidation is initiated by the company’s directors or shareholders when they decide to close the company, either because it is solvent (MVL) or insolvent (CVL). Compulsory liquidation, on the other hand, is forced by a court order, usually at the request of a creditor, when the company is unable to pay its debts. In compulsory liquidation, the court appoints a liquidator to sell the company’s assets and distribute the proceeds to creditors.