Difficult trading conditions are a fact of very business at one time or another. The collapse of large debtor or the withdrawal of key commercial finance can often leave an otherwise solvent company in a cash flow crisis. A strategy for staying in business is critical.
If a company becomes insolvent with no prospect of being able to pay its debts as they fall due, the company directors have an obligation to file for liquidation. This is a process that is handled by the company’s Accountant or specially appointed liquidator. Directors obligations especially in the case of a Limited Liability Company is to act in the best interests of the company and its creditors. Directors acting properly in a company facing insolvency will not be at risk of personal exposure for the debt of the company and will be entitled to rely on the protection of limited liability. Reckless or even fraudulent trading can open the rights of creditors to pursue the directors personally for their improper actions. It may also involve actions by the Office of the Director of Corporate Enforcement. Successful prosecutions can result in the directors in question being "restricted" or fully disqualified from acting as directors for a fixed period of time.
A company that finds itself burdened with debt but otherwise has a good trading history and, were it not for the debt burden, has a genuine prospect of survival should apply for examinership protection. This is Court protection from actions by creditors of the company for a period of time (typically ninety days) during which time an Examiner is appointed to act on behalf of the Company. This can be critical in the case of a company with commercial finance over company's assets. Typical finance arrangements allow for the appointment of a Receiver over the assets by the Bank/finance company. Once appointed the Receiver is lawfully authorised to take immediate control of the asset.
The appointment of an Examiner can interrupt this process. once the appointment is made the Examiner can agree a scheme of arrangement with the creditors of the company for a reduction of the overall debt balance. Often this is done in the form of a percentage reduction in all debts to enable the Company to trade out of its difficulties. At the end of the process the exits examinership to continue trading on new and revised terms to meet the demands of a changed environment.
An essential criteria to qualify for examinership protection is that the Examiner him or herself agrees that the Company is viable and profitable once the debt burden is reduced. The examiner will prepare a report to support the application for the Court. The Court if it agrees with report will grant the examinership protection for a specified period of time during which Examiner can seek to agree the scheme with all creditors of the business.
Staying in business can often be a financial balancing act. The right advisers and advice are critical. They can help any business deal with the sudden fluctuations that all businesses face at some point. A legal and financial strategy are critical.
If your business is insolvent and facing creditor action or if you wish to enquire about the availability of examinership protection for your business, contact us today and we will be happy to meet with you to discuss it.