What are the different types of Corporate Insolvency?
When a company is no longer able to pay its debts, it may enter a legal process known as corporate insolvency. This is not simply financial trouble—it’s a formal state where a business cannot meet its financial obligations as they come due. Understanding the key procedures involved can help directors, creditors, and stakeholders navigate this challenging time with clarity and legal compliance.
What Is Corporate Insolvency?
Corporate insolvency occurs when a company is unable to pay its debts. This may be determined through:
- Cash flow insolvency: When the company can’t pay its bills on time.
- Balance sheet insolvency: When liabilities exceed assets.
Once insolvency is identified, legal procedures are often initiated to either rescue the company or wind it up in an orderly fashion.
Common Insolvency Procedures
Administration
A licensed insolvency practitioner takes control of the company to try to rescue it as a going concern, or at least achieve a better result for creditors than immediate liquidation.
Company Voluntary Arrangement (CVA)
This is an agreement between the company and its creditors to repay part or all of its debts over time. The company can continue trading under the supervision of an insolvency practitioner.
Liquidation
This involves winding up the company, selling assets to repay creditors. There are two types:
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- Voluntary liquidation: Initiated by shareholders or directors.
- Compulsory liquidation: Ordered by a court following a creditor’s petition.
Receivership
This happens when a secured creditor appoints a receiver to recover debts, typically by selling assets pledged as security.
Why It Matters
For company directors, failing to act once insolvency is apparent can result in personal liability or disqualification. For creditors, understanding the process can help in recovering debts. And for employees, insolvency often affects job security and benefit entitlements.
How can Keywood Group – Insolvency Practitioners help?
Corporate insolvency is a complex but structured legal process. Early professional advice is crucial, not only to maximise outcomes for creditors but also to explore whether the company might be saved. With the right strategy, even an insolvent company can sometimes be steered back to viability.
Keywood Group is an independent firm of Licensed Insolvency Practitioners based in Birmingham and London, specialising in providing confidential and expert advice on all aspects of corporate insolvency.
Our services are designed to assist businesses facing financial difficulties, ensuring that processes like liquidation are handled efficiently and in compliance with legal requirements.
