Difference between insolvency and winding up
We are often asked about the difference between insolvency and winding up.
Insolvency is a catch all phrase which means that a business is unable to pay its debts as and when they fall due or might be in a cashflow insolvent situation.
Winding up is actually a specific company insolvency procedure. Winding up (also known as liquidation) is a company insolvency process bought by either directors or creditors. Winding up is intended to end the trade of the company in insolvency in an orderly manner. A liquidator will be appointed to collect in the assets of the insolvent company and distribute money available to creditors. Once liquidation has ended, the company in insolvency will be dissolved.
There are other insolvency options available for a business in financial difficulty. These include the company administration procedure. This can place a business under administration or put a firm in administration. The main purpose of company administration is to rescue the business as a going concern or to achieve a better result for the company’s creditors than if the company were wound up. The company administration procedure is frequently used in order to effect a sale of some or all of the business under administration, which is frequently by way of a pre-pack administration sale. Someone buying a business in administration may continue to use the parts of the business that are viable using this method.
There are however other company insolvency procedures such as a company voluntary arrangement (CVA). This is a binding arrangement made between a company and its creditors where a company agrees to pay a percentage of its debts within a certain period. In return creditor action is suspended. A further company insolvency option is the appointment of a receiver, which is a company insolvency remedy used by certain creditors and other third parties to protect their interest in assets.
Contact the expert insolvency lawyers today
There are many options for companies or creditors of businesses in financial difficulties and it is vital for company insolvency issues that the best route is taken for your company. Our team of experts at Francis Wilks & Jones are able to advise on all aspects of company insolvency procedures and can talk through with you what is the best option for you as a business owner or as a creditor of a business that owes you money.