A company experiencing financial crisis will not always find itself the subject of insolvency proceedings - getting advice at an early stage can often result in a rescue. For many, however, insolvency is the harsh reality.
There are four main types of insolvency proceedings: Not all of which mean the end of a company or its business activity.
In each case, the primary concern is to recover as much of the money owed to creditors as possible. This can often be best achieved by finding a solution which allows the business to continue trading.
Where there is no hope of a trading solution, either a Creditors' Voluntary Liquidation or a Compulsory Liquidation (winding-up order) is likely to result. Once the company is in liquidation a liquidator is appointed to manage the business and affairs of the company and investigate into the reasons why the company went into liquidation. The aim of the liquidator is to maximise the realisation of assets in order to make a dividend (where possible) to the creditors of the liquidation.
Administrative Receivership is instigated by a secured creditor - usually a bank - with the specific aim of recovering the lender's loan. This often results in most of the business being sold on to a third party or to management.
The final two procedures, Administrations and Company Voluntary Arrangements, are designed to allow a solution to be found for the company's survival.
These days, Administrative Receivership is rarely used and new rules for Administrations and CVAs make company rescues a more realistic prospect than formerly. The key, as ever, is to take advice - and action - early.