Pre-insolvency Strategic Advice
Ramsden Lawyers’ pre-insolvency solicitors work to achieve the best possible result for companies and their directors, financiers, unsecured creditors and shareholders under financial pressure. Whether it be restructuring of a business or corporation, assisting directors or supporting shareholders, we take a pragmatic and collaborative approach to developing appropriate and strategic solutions.
Many corporations who are under financial pressure do not recognise the need for new business strategies and instead continue to trade. As a consequence remedial action may be left too late. It is important to recognise that the sooner a business decides to take action, the greater the return to creditors and lower the probability of insolvent trading. Even a highly profitable business may be underperforming or in a situation whereby debts cannot be repaid. Any business facing financial pressure requires informed legal advice at the earliest opportunity.
When a company has insufficient assets to meet liabilities, the directors must decide what action to take to maximise return to creditors whilst avoiding personal liability of company debts. Our specialised insolvency lawyers offer pre-insolvency solutions, including:
- Deed of Company Arrangement (DOCA);
- scheme of arrangement;
- voluntary administration;
- receivership; and
- liquidation / winding up.
Deeds of Company Arrangement
A Deed of Company Arrangement (DOCA) is a formal agreement entered into between a company and its creditors in order to provide a fast, flexible and inexpensive form of administering the company and to maximise the chances of the company continuing. Under a DOCA, creditors are likely to receive a more favourable dividend from the company than from liquidation.
Schemes of Arrangement
A scheme of arrangement is a court-approved arrangement entered into between an insolvent company and its creditors or members. A scheme of arrangement may be used to avoid insolvency in the same manner as Deeds of Company Arrangement. However, unlike DOCAs, schemes of arrangement take into account the rights of creditors against third parties such as guarantors.
As an alternative to bankruptcy, company directors may find it appropriate to place the company into voluntary administration. Voluntary administration involves the appointment of an external entity (the administrator) to take control of the affairs of the company for a period of usually 4 – 6 weeks in order to allow the directors of the company to propose a resolution of the company’s financial difficulties to its creditors. Voluntary administration can be advantageous because it allows immediate action to be taken, sets a fixed time frame for dealing with issues, allows a company and its creditors to consider merits of a compromise arrangement which may maximise the return to creditors and where a company acts promptly, voluntary administration enables company directors to avoid personal liability.
A secured creditor of a company may in certain circumstances appoint a receiver to take control of the debtor company’s assets for the purposes of liquidating them to repay the outstanding debt owed to the secured creditor. A receiver can also be appointed by the court in a variety of circumstances, in which case the receiver must act in accordance with the court order. We may assist you where a secured creditor wishes to appoint a receiver in order to ensure that the most favourable outcome is achieved.
Liquidation / Winding Up
Where insolvency cannot be avoided or a viable work out strategy is not available, the directors and shareholders of a company may have no other option but to appoint an external official to liquidate the company’s assets in order to repay debts to creditors. Upon appointment, the liquidator assumes full control of the company’s affairs. Where the funds are sufficient to meet the needs of creditors, the surplus funds are distributed according to the company constitution. However, if the company has insufficient funds to continue to trade, they can elect to place the company into liquidation. Upon completion of liquidation, the company is deregistered. Our team of solicitors may assist you to ensure the most favourable outcome is achieved.