Below is a brief explanation of various insolvency procedures

A Creditors' Voluntary Liquidation is a process commenced by the directors for the liquidation of the company's assets and distribution of available funds to the various classes of creditors - secured creditors, preferential creditors and shareholders.

This process see the end the the company and leads to its dissolution at Companies House. It is therefore the appropriate process for the cessation of trading and the closure of the company.

In appropriate circumstances, the former directors are able to purchase the company's assets, including goodwill, to facilitate the establishment of a new business.

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A compulsory liquidation is a Court-driven process instigated by a creditor with a proven outstanding unpaid debt. If the company has reached this stage, then all other options should have been exhausted and the closure of the business will already have taken place.

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This is the principle insolvency tool to facilitate the rescue and survival of the business. It provides an immediate moratorium of the company's debts to give time for an Insolvency Practitioner to work with the directors to produce the best result for all classes of creditors.

Administration is normally followed by either CVL or CVA
The CVL exit route will be appropriate if the assets of the business have been sold and the purpose of the CVL is the distribution of available funds to the creditors.

The CVA exit rout would typically provide for the company's debts to be frozen with an agreed payment plan in place, typically over 5 years.

The changes in legislation in 2003 simplified the process to speed up the appointment of an Administrator, confirmed the circumstances where the Administration is appropriate and legislated for the Administration process to be completed within 12 months.

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Whilst this is a separate insolvency process, it is normally preceded by Administration
As a stand-alone process, proposals will have to be drafted by the directors providing full details of the company's assets and liabilities. the proposals will have to be submitted to the company's creditors (at least 14 days' notice) and a 75% majority of creditors need to approve the proposals or modify them to incorporate the necessary modifications to gain acceptance.

A typical CVA will be a payment plan over 5 years under the supervision of a licensed Insolvency Practitioner. During the period of the CVA, the management of the company remains with its directors.

At the commencement of the CVA, the directors disclose to all its creditors that the company is insolvent and unable to pay its debts in full. The outcome of the proposals is not known and, if rejected, leaves the company insolvent without a resolution to its financial difficulties. Administration is used as an initial insolvency process prior to a CVA being proposed as this avoids the above situation.

A debtor proposes an IVA to his/her creditors to agree a repayment plan over time for part or full repayment of the outstanding debt.

75% of creditors need to agree to the proposals. Typically, a 5 year payment plan will be entered into. After successfully completing the term of the IVA, the individual is debt free.

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There is a court process which can either be instigated by the individual debtor or by a creditor with a proven unpaid debt. The Official Receiver will immediately take control of the debtor's assets and, where appropriate, will instruct a Licensed Insolvency Practitioner to deal with the realisation of assets for the benefit of creditors.

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These are informal agreements with the individual's creditors not requiring any court involvement and not necessarily involving a licensed Insolvency Practitioner.

 
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