Company Directors

If your company is experiencing cashflow difficulties or is insolvent, with its liabilities greater than its assets, you may be looking at a choice between company administration or liquidation. The main difference between the two is that with administration the aim is to try to preserve the business as a going concern, whereas with liquidation usually all the assets are sold off and the company legally ended (see section below on liquidation). Generally, administration is better suited to larger entities with a business that could survive if its debts were dealt with.

As the company director involved in an administration, you choose an insolvency practitioner and work with them to ensure a better outcome than liquidation and increase the chances of keeping the business going.

Our specialist Restructuring and Insolvency team at Thorntons can provide practical advice and guidance on administration, introduce you to an insolvency practitioner and guide you through the whole process. If you contact us when your company starts to get into difficulties then there are more options for rescuing the business.

Receiverships are now less common. However, in certain circumstance when dealing with a pre-September 2003 security, an administrative receiver may be appointed by a lender holding a floating charge over some of your company’s assets. We can advise you on processes and options if you are dealing with a receivership.

Some company directors fail to deal with creditor issues, putting off addressing the problems until it becomes a major difficulty, in particular over money owed to HM Revenue and Customs and key suppliers.

If your limited company or limited liability partnership (LLP) cannot pay its debts and is being pursued by its creditors, it could go into liquidation, where its assets are used to pay off its debts and it is dissolved.

There are two types of liquidation:

• Compulsory liquidation - by the court
• Voluntary liquidation - by the directors, the members or the creditors

However, there could be other options open to you and expert advice at this stage can often help you avoid liquidation. If you are dealing with creditors pursuing the business for money, it is important not to ignore the problem. We are hugely experienced in dealing with such situations and can work with you to find a solution, in many cases being able to save the business.

If your limited company is insolvent, it may be able to keep trading if your creditors agree to a Creditor Voluntary Arrangement (CVA), where debts and repayments can be compromised and rescheduled over a fixed period. CVAs have to be arranged and administered through an insolvency practitioner.

If you are a director of a creditor business, for instance you are in the supply chain of a company facing insolvency or its landlord, you may receive a CVA proposal. The CVA must be agreed by 75% (by debt value) of the creditors involved, otherwise the company could face insolvency.

Whether you are a director of the company facing difficulties or a creditor concerned about the change in credit terms, our insolvency specialist solicitors can help with practical advice and guidance on your options.

If your company is over-leveraged, it may be possible to restructure the debt to enable the business to continue trading. Strategies could include changing banks, re-banking, invoice discounting or short-term secondary loans. Taking expert advice early can help you find a workable outcome for the business.

At Thorntons, we can advise you on possible debt restructuring routes, including assistance with changing banks, secondary and tertiary lenders, short-term secondary or mezzanine lending, and distress refinancing. 

As a company director, you may have used your personal assets as a guarantee for your business loans. For example, a lender may have placed a charge against your property so they can recover their loan if you are unable to meet repayments. If the business then gets into trouble, your guarantees may be called up and your personal assets may be at risk, adding to what can already be an extremely stressful situation for you.

If you are in such a situation, seeking legal advice as soon as possible can give you options over possible challenges to the claim against your personal assets and alternative repayment strategies.

At Thorntons, we can work with you when setting up your business finances at the start to help you avoid giving personal guarantees, so protecting your personal assets. We are also on hand to advise you on your options if your personal guarantees are called in, including the validity of challenging, debt restructuring and lender choices.

You may find that while your company overall is solvent, part of the business is struggling and potentially affecting the whole. One option to consider would be to restructure the business, saving the solvent rest of the business.

Such business restructuring can also be undertaken to make the company set-up more tax efficient. 

We can advise you on solvent restructuring options for business solvency and tax-efficiency, guiding you through the whole process.

If a business is going into liquidation or administration, you might see it as an opportunity to buy it up. However, buying an insolvent business is a very different process from buying a solvent company, and it needs to be handled carefully to avoid potential problems and issues.

Our Restructuring and Insolvency team can give you the specialist advice and support needed to navigate the process successfully.

As a company director, you have statutory duties and responsibilities under the Companies Act, including exercising reasonable care, skill and diligence, and if you breach these duties you could find yourself personally liable to pay compensation.

If you are unsure of your director duties, or concerned you could be facing personal liability and potential bankruptcy, get expert advice as soon as you can. We can give you expert advice on your options and necessary action.

Partnerships, but not limited liability partnerships, are regulated by the personal bankruptcy regimes. This means that should the partnership get into a position with liabilities greater than assets it would be facing bankruptcy rather than a corporate insolvency regime. Under bankruptcy, the partners’ personal assets would have no protection. 

If you are in a partnership, it is important to take advice early to avoid bankruptcy and protect your personal assets. Thorntons bankruptcy solicitors can help.