Litigation - Corporate insolvency procedures

There are a number of processes and procedures which must be adhered to in the process and procedure of winding up a business. This can occur in a number of ways and within a variety of different time scales, depending on the state and circumstances of the business in question. 

The following procedures are capable of allowing for the survival of an insolvent company: 

• Administration. This is a procedure under the IA 1986 where a company may be rescued or reorganised or its assets realised under the protection of a statutory moratorium. The company is put into administration and an administrator is appointed. Prior to the Enterprise Act, administration could only be commenced by obtaining a court order.
• Administrative receivership. This is not an insolvency proceeding in the strict sense but rather a remedy for a secured creditor to allow for the realisation of company assets subject to security. The Enterprise Act effectively abolished administrative receivership except in a few limited circumstances. If a floating charge is created on or after 15 September 2003 and none of the exceptions in the Enterprise Act apply, administrative receivership is no longer available as a remedy to enforce that security.
• Company voluntary arrangement (CVA). This is where the company and its creditors come to an agreement, which is then implemented and supervised by an insolvency practitioner under Part I of the IA 1986. It is used to avoid or to supplement other types of insolvency procedures. It may be used in conjunction with administration where a moratorium gives the company breathing space to agree any proposals with creditors.
• Scheme of arrangement. This is where a compromise or other arrangement with creditors (or any class of creditors) or members (or any class of members) is made under Part 26 of the Companies Act 2006 (formerly section 425 of the Companies Act 1985), which is binding if the appropriate majorities of each class of creditors/members agree. Unlike a CVA under Part I of the IA 1986, a scheme of arrangement must be sanctioned by the court. When sanctioned by the relevant majority of creditors/members and the court, the scheme will bind all members and creditors regardless of whether they had notice of the proposed scheme of legal arrangement. 

The alternative to the various rescue mechanisms is to liquidate or wind up the company. This involves the appointment of a liquidator who realises the company's assets and dissolves the company. The company can also be put into provisional liquidation before a final winding up order is granted.