What type of insolvency procedures are deemed Relevant Insolvency Proceedings?
An insolvency proceeding is a formal process overseen by an insolvency practitioner (IP) aimed at either rescuing a business or winding it down most fairly and efficiently achievable.
A ‘relevant’ insolvency proceeding aims to enable a recovery, allowing the business to continue operating as a going concern. Consequently, any insolvency process that doesn’t offer a possibility of recovery is deemed irrelevant.
Directors often wonder why it’s termed a “relevant” proceeding. The explanation is quite simple: any proceeding that ultimately leads to the closure of a company is considered irrelevant in terms of regulations (e.g., TUPE) because there won’t be anything remaining of the company to regulate once the proceeding concludes.
As per the Department for Business, Enterprise and Regulatory Reform (DBERR), the following insolvency procedures are regarded as relevant:
(i) Administrative Receivership:
A creditor with a floating charge on the company’s assets assumes control of the business to recoup the secured debt owed to them. It’s important to highlight that non-administrative receivership is not deemed a relevant proceeding.
(ii) Company Administration:
An insolvency practitioner (IP) is designated as the administrator of the company, obtaining complete management control to facilitate recovery. The administrator acts as a temporary chief executive officer (CEO) and can employ various strategies to raise funds and support business rescue efforts. Once a court grants an administration order, creditors are barred from pursuing legal action against you for the duration of the order.
(iii) Company Voluntary Arrangement (CVA):
A Company Voluntary Arrangement (CVA) is a legally enforceable agreement between an insolvent business and its creditors and contributors (such as employees and suppliers). An insolvency practitioner (IP) would prepare and propose the CVA on behalf of the insolvent company. If accepted by creditors, it would entail revised repayment terms and decreased expenses through renegotiation of contracts on a global scale.
The following insolvency proceedings are NOT considered relevant:
(i) Voluntary Liquidation:
The directors/owners of an insolvent business submit a resolution declaring their voluntary decision to initiate liquidation and cease operations of the company.
(ii) Compulsory Liquidation:
A creditor petitions the Court to seek a compulsory liquidation order. If granted, the order would terminate the insolvent company’s operations, and its assets would be sold in a liquidation sale to repay as much outstanding debt as possible.
If you’re seeking to explore your recovery options and pursue a business rescue through a relevant insolvency proceeding, we’re here to assist you. Similarly, if you’re aiming to wind up your company without complications, we can ensure a smooth process. Feel free to reach out to us via email or phone for complimentary director support and guidance.
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I am an insolvency professional with a distinguished career specialising in commercial insolvency, adeptly navigating Creditors Voluntary Liquidation, Company Voluntary Arrangements, and Company Administrations. With a comprehensive understanding of insolvency laws and an unwavering commitment to ethical practices.