The COVID-19 pandemic has meant organisations and government banks are having to move fast to provide support for companies and businesses. There are many out there in jeopardy from the negative impact of the virus, especially where they are unable to open. Entire sectors are taking a major hit. The most startling impact of this pandemic – and the resulting lockdown – is the rise in corporate insolvency.
What is insolvency?
Insolvency occurs when an individual or company’s liabilities exceed the value of their assets. If a financial total cannot be raised to meet a deadline, the company or individual is technically insolvent. Once that happens, there are a number of options an individual or company can take.
Insolvency is a very big and very real threat in these times, so if you think your company might be at risk, it’s important you seek professional advice to resolve the situation before it’s unsalvageable. A professional can help you negotiate with creditors through informal agreement, arrange voluntary arrangements with sole traders, chase debtors, and sell assets to save your company.
If you’re speeding towards potential insolvency, get a professional involved immediately. You might be worried about spending the money, but it is well worth the investment. They’ll try their best to save the day, and dig you out of the difficult hole you’re in. If you want to know more about the types of services insolvency specific solicitors offer, please fill in the contact page on the bottom of our homepage.
Insolvent Company Options
If your company is already insolvent, you’re no doubt feeling desperate. You’ll want to know what your options are immediately, and whether or not your company is able to be saved. You can choose from the following two options.
With administration, the company is protected against creditors enforcing the payment of debts while an insolvency practitioner (administrator) takes the lead in managing affairs and trading. They’ll likely reorganise the company, or sell a percentage (or all) of the company in order to try to pay off your debts. There are cases when the sale of the company and its assets might have been negotiated before the appointment of the administrator, or it could be completed on appointment. This would be referred to as a pre-packaged administration sale. You’ll have seen lots of these in the news, when big companies announce they’re in administration, then that they have been bought out by somebody else.
When a company goes into liquidation, the company’s assets are under the control of the insolvency practitioner (liquidator). Liquidation is essentially the dissolving of the company completely. Sometimes, administration can lead to liquidation. Whereas administration could potentially allow the company to continue as a debt-free new company, liquidation really is the end of the road.
Corporate Insolvency & COVID-19
Lending in the corporate sector is astronomical and historical, as companies seek to balance their books. Predictions put corporate trade debt at more than 14% higher in 2020 than in 2019, where that growth previously was as low at 2%.
In order to help companies, the Government announced in December that they plan on extending insolvency measures already in place. These are as follows:
- Companies and qualifying bodies with AGMs will be permitted to hold these meetings virtually until the 31st March 2021.
- Statutory demands (a written demand from a creditor) and winding-up petitions (a petition from a creditor to the court to start proceedings) are restricted until 31st March 2021, to protect companies from aggressive creditor enforcement action.
- The temporary removal of the threat of personal liability for wrongful trading from directors has been extended until 30th April 2021.
You should also note that termination clauses are prohibited, which means your supplier cannot cease their supply or ask for an additional payment when your company is going through a rescue process, unless they are a small supplier, in which case they’re permitted to stop supplying in order to protect their business.
If your company has been subject to insolvency in the last twelve months, you can enter into a moratorium, which is a legally authorised period of delay in the performance of a legal duty or payment of a debt.
Contact the professionals
These are trying and difficult times for everyone. Companies and their suppliers are struggling to balance their books, and we’re sure we’ll see the impacts of this on several sectors of the business world for many years to come.
For this reason, we’d advise you to invest in a solicitor if you can. Not only can they give you key advice to prevent insolvency, they’ll also help you escape with as little damage as possible.
For more information on how JMR Solicitors can help you with a looming potential insolvency, please fill in the contact us form on our homepage.
You can also call 0161 491 3933 or email firstname.lastname@example.org