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In the main, The Insolvency Act 1986 was effected to establish various ways of assisting businesses which are experiencing financial difficulties, but where it would be worthwhile to try and save the business in whole or in part while allowing it to continue trading.
Therefore two new procedures were introduced in 1986 which are summarised below:
Administration Orders
This procedure is designed to protect a company from its creditors on finding itself in an insolvent position. Prior to a change in legislation in 2003, an application was made to the Court, usually by the Directors for an Administration Order and for an Insolvency Practitioner to be appointed as Administrator to act in respect of the company’s financial dealings. Pursuant to the provisions of The Enterprise Act 2002 the method of appointing an Administrator are more straightforward and less time consuming but in the main the principles are similar.
Following the changes, it is now possible to appoint an Administrator out of Court. The objective of an Administration is as follows:-
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To rescue the company as a going concern
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Achieve a better result for creditors as a whole than would be likely if the company were wound up; failing which
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Realising property in order to make a distribution to the company's secured or preferential creditors.
Corporate Voluntary Arrangements (CVA)
This is a scheme of arrangement whereby a company makes an application to the Court for an Order to protect itself from any action being taken by its creditors. This affords sufficient time for a proposal to be put before the creditors for their consideration. The proposal should contain details of how and when the company will be in a position to pay its debts, either in full or in part, and if accepted by the required value of creditors any credtior without leave of the Court can take no action against the company.
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