When a business fails there are a wide variety of different processes and tools designed to achieve different objectives from a business, depending on the reasons for the business failure.
There are four principal formal insolvency procedures that company insolvency processes designed for companies. Some of these processes are final, and some may lead to some form of business recovery and company rescue.
The four main company insolvency processes
There are four principal insolvency procedures designed for companies which could answer the question of what happens if my limited company goes bust. These are:
Administration is a procedure which gives a company some time to breath without being pressed by creditors, with a view to either a company rescue or business turnaround, or to allow for a company restructuring or business restructuring. A business rescue expert is appointed as administrator to act on the company’s behalf during the period of company administration.
2. Liquidation (or winding up)
This is a more final procedure for companies, bringing about a cessation of trade (usually). There is no company rescue or business structuring with liquidation. In a company winding up a business rescue expert is appointed as independent liquidator whose job is to collect in assets and distribute money available to creditors.
A receiver is appointed usually by a secured creditor (such as a bank) to protect their the assets in a company which fall under their security. It may be the case that the company is looking at a business recovery solution already, or may be in company restructuring/ business turnaround. At the least they are likely to be experiencing cash flow problems for the creditor to consider that their secured assets might be at risk. Again, an independent business rescue expert is appointed as Receiver over the assets. Receivership does not mean that the business has failed, and the company may continue to trade, but it very much depends on the circumstances and how key the asset is to the business, as this may well be sold by the Receiver to re-pay the secured creditor.
4. A company voluntary arrangement
A CVA is a voluntary arrangement made as a contract between creditors and the company to reach agreement to allow for breathing space for a company rescue and business turnaround. A company voluntary arrangement does not necessarily mean that the business has failed, but can in fact lead to a successful business turnaround and business recovery.
As can be seen from the above, there is a wide variety of company insolvency processes so the question what is it called when a business fails, is open to much interpretation depending on the circumstances of the business. At Francis Wilks & Jones we can talk through any business issues you may have and our team of business rescue experts can talk through options for your own business situation.