Act early to deal with insolvency

Jun 17 2008 by Julian Gill & Terry Phillips, The Journal

INSOLVENCY procedures are not just remedies for insolvent companies or companies in financial difficulties.

A Members Voluntary Liquidation, known as an MVL, is possible where the directors and members of a solvent company decide that a business should be wound up in an orderly manner. The company directors must be in a position to swear a statutory declaration that the company is solvent and that it will be able to pay its debts in full, together with interest, within 12 months. A liquidator then agrees and pays creditors’ claims, determines the taxation position and distributes the residue to the shareholders.

An MVL is an integral part of various different reorganisation and reconstruction processes which can be attractive for a number of business reasons.

First there may be the ongoing businesses from a number of group companies or special purpose vehicles, that have grown over time, and it may be desirable to consolidate those companies into one.

Secondly, a business may wish to split its operations and groom parts of the business separately for growth or sale.

Thirdly, a family business may be split to allow different families from the next generation to run their own companies.

Finally, if shareholders fall out, an MVL which allows the business to be split into distinct entities may help to avoid legal costs which inevitably result from any necessary litigation to resolve the dispute.

A well-designed reorganisation can reduce the risk to hard-earned business assets, such as properties, by ensuing that valuable assets are ring-fenced in order to secure them from any risk associated with future poor trading.

In the midst of the so-called credit crunch, your business may be achieving an acceptable level of performance – but what of the future? Now is an excellent time to consider extracting value from your business and moving forward to take steps to protect the business empire in the future.

The key is to act at the right time – early.

Julian Gill is a partner in the corporate recovery group at Dickinson Dees LLP and Terry Phillips is a solicitor.