3 alternatives to liquidation for directors

A clever director will be considering their options as the number of corporate insolvencies continues to rise in 2022. Still, try not to make rash decisions as they can lead to bad results.

There are several alternatives to liquidation that can help a proactive director move forward with an insolvent but profitable business. An agreement to pause some debts may be reached while new investment is found to revive the company.

However, this type of solution is only viable if the company’s directors and creditors are willing to work together. A company voluntary arrangement (CVA) is another alternative to liquidation that directors and business owners should consider.

Alternatives to liquidation

A CVA is a useful business rescue tool for a company that has:

1. Too much historic debt
2. Good prospects going forward  

Company voluntary arrangements (CVAs) allow companies to operate while negotiating with their creditors. Directors maintain control of the everyday business and retain the customer base and contacts.

Additionally, a director may consider administration as the best alternative to liquidation if a CVA is unsuitable and creditor negotiations are unsuccessful. The administration procedure protects companies from any creditors who attempt to:

• Have the company placed into compulsory liquidation
• Take further legal action

One of the primary goals of administration is the rescue of an asset-rich but insolvent company. Consequently, this type of insolvency procedure provides directors and business owners with a great opportunity to turn things around.

Options for directors under pressure

Additionally, the Corporate Insolvency and Governance Act 2020 introduced a new:

• Restructuring plan to help viable companies struggling with debt obligations
• Standalone moratorium procedure to give struggling companies more time to restructure

Creditors are obliged to vote on and comply with a proposal that is “fair and equitable”. However, the courts may also impose the plan on creditors if necessary.

Email us at [email protected] if you are a director or business owners with a company that’s insolvent or facing insolvency. Our recoveries and insolvency team are happy to assist during what can be a stressful time.