If you are the Director or shareholder of a distressed company you’ll want to be sure that you are aware of your four main alternatives and what they involve, advises Imran Kamal. 1. Creditors compromise 2. Voluntary administration 3. Receivership 4. Liquidation

1. Facing insolvency? You have 4 options
Imran Kamal, Debt Consultant & Accountanttalkswith Alistair McAlpine
If you are the Directoror shareholderof adistressedcompanyyou’ll wantto be sure that you are
aware of yourfour mainalternatives andwhattheyinvolve,advisesImranKamal.
1. Creditorscompromise
2. Voluntary administration
3. Receivership
4. Liquidation
1. Creditors compromise
A creditor'scompromise canbe a good choice if yourbusinessisbasicallysound, saysImran, even
thoughit isexperiencingmonetaryproblems. “Yourcompany maybe able to negotiate withyour
creditorstoallowyouto trade yourway outof yourinsolvencyproblems,”he says. “Theymayallow
youto avoidadministration, receivershipand liquidation.”
“A Compromise will be inthe bestinterestsof bothparties of course, andnot only benefityour
company.For example yourcreditorsmay helpyouto stayafloatso that youcan continue to
provide ongoingbusinessforthem.”
What about yourdebt?
“You may agree to payyour creditorsinfull orin part over time;withcreditorscancelling the
balance of your debt.”Or,says ImranKamal, your company'sdebts maybe frozen, withall creditors
agreeingnotto take actionagainst you while yougetbackon yourfeet.
Compromisesare governedbyPart 14 of the CompaniesAct1993 whichstatesthateach classof
creditorsaffectedmustvote asa class. “Classescan include groupsorindividualslike;IRD,
employees,landlords,hire purchase creditorsetc.Fora compromise agreementtobe valid,75% of
each classof creditormust agree to it.”
Persuadingyourcreditors maynotbe easysaysImran Kamal
It isImran’sexperiencethatyourapproachto the negotiationsiscritical tothe survival of your
business.“Yourcreditorsare only goingtoapprove of a compromise if theyare convincedthatthey
will be betteroff;thanseeingyoufall intoadministration thatis,orliquidation/receivership.The
discussions are goingtohave a major impacton the future of yourbusinesssoyou may need
professionaladvice before proceeding.”
2. Voluntary administration
Your distressedcompany canenterintovoluntaryadministration if itwill improve yourchancesof
stayingafloatanddeliveringcreditorsabetterreturnthan liquidation.
An administratormaybe appointedby:
 Your distressedcompany'sdirectors
 A receiver

2.  A securedcreditorholdingacharge overall or a significantamountof yourcompany'sassets
 The Court.
What are the advantagesofvoluntaryadministration?
“While yourcompanyisundervoluntaryadministration, creditors'are limitedintheirabilitytobring
chargesagainstyour company,reclaimcompanyassets orenforce otheragreements,”saysImran
Kamal. “However,within10workingdaysof the voluntaryadministrationcommencing,aGeneral
SecurityAgreementholdermayengage areceiver. Soto avoidthishappening, the administrator
needstomake sure that they have the backingof all GSA holders.”
The administratortakescontrol of the company'sbusiness andhas25 workingdaysto complete an
investigationandprovide anopiniononthe mostbeneficial course of actionforcreditors. Inthat
time yourdirectorscan onlyact withthe administrator’s writtenpermission.
What will the administratordo?
The administratorwill decide toeither:
 Place yourbusinessintoliquidation;or
 Have it enterintoa Deed of CompanyArrangement withyourcreditors;or
 Returnyour companyto itsdirectors
What is a DeedofCompanyArrangement?
A DCA is a contract agreedbetween yourcompanyand yourcreditors. “The administratoris
responsible forensuringthatyour company observes the termsandconditions of the arrangement.”
3. Receivership
Imran saysthat a receivercanbe appointed byasecuredcreditorwhohasbeengranteda General
SecurityAgreementoveryourcompany'sassets. “The creditoristypicallyafinancial institutionora
private investor.”
What is the purposeofa receiver?
“The receiver'sprimarypurpose istorecoverfundsforthe securedcreditor,”saysImranKamal.
“However,theyalsohave aduty to protectthe rightsof yourcompany’sothercreditors.”
The ReceivershipsAct1993 statesthat a receiverhascontrol overyour company'sassetssubjectto
the General SecurityAgreement. “Theywill reporttothe securedcreditorandfile the reportwith
the CompaniesOffice.”
When do youregaincontrol ofthe company?
Imran saysthat whenthe securedcreditorhasbeenrepaid the receiverceasestoact andyour
directors reclaimcontrol of yourcompany. “Howeverif there are still assetstobe realised,moneys
still payable tounsecuredcreditorsormattersneedingfurtherexamination; aliquidatormaybe
appointed.”
4. Liquidation
A liquidatorisappointedtosell yourcompanyassetsandassignthemtocreditors. There are two
typesof Liquidation:

3.  VoluntaryLiquidation
 Court appointedliquidation
1. VoluntaryLiquidation
Whenyour companydirectorsor shareholders decidethere isno wayyoucan trade yourway outof
your financial problems theycanappointaninsolvency specialistasliquidator. Thisisknownasa
voluntaryliquidation.
2. Courtappointedliquidation
If the directorsorshareholdersdonot appointa liquidator,acreditormayapplytothe Court for
your company to be placedinliquidation. ImranKamal saysthat,“In thiscase the Courtdecides
whoto appointas liquidator. If acreditorhas been servedyourcompany awindinguporder,the
directors/shareholdershave 10workingdaysto putthe companyinvoluntaryliquidation toavoid
actionby the court.”
Do we retaincontrol ofourcompany?
“Remember,the liquidator'smaindutyisto realise assetsbelongingtothe companyanddistribute
the proceedstocreditors.”Liquidators are governedbyPart16 of the CompaniesAct1993.
“Once your company isplacedin liquidation yourdirector'spowersare constrained andtheymust
co-operate withandsupportthe liquidatorinhisduties,includinghandingoverall your company's
records,”says Imran.
Will the liquidatoronlysell assetsandassignthemto creditors?
“The liquidatormayalso examine the reasons foryourcompany's problems,setasideinsolvent
transactionsandtake legal action. Theymustreportto creditors everysix monthsandfile the
reportswiththe CompaniesOffice.”
Imran Kamal remindsyouthatonce the liquidation of yourcompany iscompleteditisstruckoff the
CompaniesRegister.
Which is the best course of action for your company?
“Whena distressedcompanyfacesinsolvencythe situationislikelytobe complicatedandmany
factors needtobe weighedup,includingyourrelationshipwithyourcreditors.Yourbestcourse of
actionis to seekoutprofessional advice fromsomeone inapositiontoweighupyourcircumstances
astutelyandquickly.”
Imran Kamal adviseshisclientstomake sure thattheydo not act rashlyor froma positionof stress,
as time andagain inhisexperience, thishasprovedtobe disastrous.
- AlistairMcAlpineis a commercial Web-writerand Broadcaster.