Company liquidation

Alternatives to liquidation

Guide

If a company or limited liability partnership faces financial difficulties it doesn't have to result in liquidation. 

Alternatives to liquidation include:

  • administrative receivership
  • members' voluntary liquidation
  • company voluntary arrangement
  • administration

Administrative receivership

An administrative receiver can be appointed by a creditor. The receiver must be an insolvency practitioner (IP). Before a receiver can be appointed, a document, called a debenture, which gives the creditor charge over company assets must be granted by the company. Once granted the company is in administrative receivership. The receiver's job is to recover money for the creditor.

There are several options including:

  • continuing in business under supervision
  • selling all or part of the company
  • ceasing trading and selling assets

Company Voluntary Arrangement (CVA)

A CVA is when a company proposes an arrangement with its creditors. If creditors holding more than 75 per cent of the debts accept the proposal, all creditors are bound by it. The CVA must be managed by an IP who will report on progress annually. If a CVA is accepted, creditors cannot take action against the company. A CVA ends when it has either been completed or failed.

CVA moratorium

There may be a moratorium into CVA procedures. This means that, subject to certain specific exceptions, creditors cannot act against the company. It will normally last for 28 days and the court will decide if a company is eligible.

Administration

This is when an administrator, who must be an IP, is appointed to manage a company's affairs. Their objective is to rescue the company as a going concern. An administrator may be appointed by:

  • an administration order from the High Court
  • the holder of a floating charge
  • the company or its directors/members

Administration protects the company from its creditors. A creditor cannot petition for the winding up of a company while it is in administration.

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