COMPANY INSOLVENCY | INSOLVENCY ACT 1986
Liquidation | Administration | CVAs
Initiated against the insolvent company by a third party. This is the
Compulsory Liquidation result of a third party presenting a winding-up petition to the
court. The petitioner must be able to show one or more of the
grounds for CL.
Creditors’ Voluntary Liquidation Initiated by an insolvent company, usually in response to creditor
pressure
Members’ Voluntary Liquidation Initiated by a solvent company that wishes to cease trading or is
dormant
A company is unable to pay its debts if –
S123(1)(a)
A creditor owed more than £750 has served formal written demand upon the company
(a statutory demand), waited 3 weeks and not been paid/ come to an agreement
S123(1)(b)
A creditor has obtained judgement against the company and attempted to execute the
judgement (by sending court officials to recover assets or cash from the company) and
the debt remains unsatisfied in full or in part
S123(1)(e)
The Cash Flow Test – it can be proved to the court that the company cannot pay its debts
as they fall due. Evidence may include:
i. The creditor having demanded money and the company, without reasonable
excuse, failing to comply with that demand
ii. The company admitting it cannot pay the debt (e.g. in an email/ letter)
S123(2)
The Balance Sheet Test – It can be proved to the court that the company’s assets are less
than its liabilities
What are the Creditors’ Options?
Unsecured Creditors:
• Serve a statutory demand
• Sue the company, obtain judgement and attempt to execute judgement
• Suggest a CVA, although this process is driven by directors
• Apply to the Court to put the company into administration
Secured Creditors
In addition to the above:
• Appoint an administrator out of court
• Appoint an LPA receiver
Liquidation | Administration | CVAs
Initiated against the insolvent company by a third party. This is the
Compulsory Liquidation result of a third party presenting a winding-up petition to the
court. The petitioner must be able to show one or more of the
grounds for CL.
Creditors’ Voluntary Liquidation Initiated by an insolvent company, usually in response to creditor
pressure
Members’ Voluntary Liquidation Initiated by a solvent company that wishes to cease trading or is
dormant
A company is unable to pay its debts if –
S123(1)(a)
A creditor owed more than £750 has served formal written demand upon the company
(a statutory demand), waited 3 weeks and not been paid/ come to an agreement
S123(1)(b)
A creditor has obtained judgement against the company and attempted to execute the
judgement (by sending court officials to recover assets or cash from the company) and
the debt remains unsatisfied in full or in part
S123(1)(e)
The Cash Flow Test – it can be proved to the court that the company cannot pay its debts
as they fall due. Evidence may include:
i. The creditor having demanded money and the company, without reasonable
excuse, failing to comply with that demand
ii. The company admitting it cannot pay the debt (e.g. in an email/ letter)
S123(2)
The Balance Sheet Test – It can be proved to the court that the company’s assets are less
than its liabilities
What are the Creditors’ Options?
Unsecured Creditors:
• Serve a statutory demand
• Sue the company, obtain judgement and attempt to execute judgement
• Suggest a CVA, although this process is driven by directors
• Apply to the Court to put the company into administration
Secured Creditors
In addition to the above:
• Appoint an administrator out of court
• Appoint an LPA receiver
