What is a Relevant Insolvency Proceeding?

Updated: 4th November 2021

What is a Relevant Insolvency Proceeding?

An insolvency proceeding can be defined as a formal procedure facilitated by an insolvency practitioner (IP) with the goal of either saving a business or putting it to an end in the most effective and equitable manner possible.

A ‘relevant’ insolvency proceeding is one that is carried out with the intention of facilitating a recovery so that the business can emerge and operate as a going concern. Therefore, any insolvency procedure that does not provide a chance of recovery is not considered a relevant proceeding.

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Many directors are confused as to why it is called a “relevant” proceeding, but the answer is rather straightforward -- Any proceeding that is going to inevitably result in the end of a company  is considered irrelevant with respect to regulations (i.e. – TUPE) because there will be nothing left of the company to regulate once the proceeding is finished.

According to the Department for Business, Enterprise and Regulatory Reform (DBERR), the following are considered relevant insolvency proceedings:

  • Company Administration –An IP is appointed as the administrator of the company and given full control over management with the aim of recovery. The administrator assumes the role of temporary chief executive officer (CEO) and can use a number of methods to raise funds and facilitate a business rescue. Once an administration order is granted by the Court no creditors can take legal action against you for as long as the order is in effect.

  • Company Voluntary Arrangement (CVA) – A CVA is a legally binding agreement between an insolvent business and its creditors and contributories (i.e. – employees and suppliers). An IP would draft and propose the CVA on behalf of the insolvent company, and if approved by creditors it would produce revised repayment terms and reduced expenditure through a global renegotiation of contracts.
     
  • Administrative Receivership – A creditor who holds a floating charge over the company’s assets takes control of the business to recover the secured debt owed to them. It should be noted that non-administrative receivership is not considered a relevant proceeding.

The following are NOT considered relevant insolvency proceedings:

  • Compulsory Liquidation – A creditor applies to the Court to request a compulsory liquidation order. If granted the order would put the insolvent company out of business and its assets would be sold n a liquidation sale to repay as much outstanding debt as possible.
     
  • Voluntary Liquidation – The directors/owners of an insolvent business submit a resolution stating that they have elected to voluntarily enter into liquidation and put an end to the company.

If you’d like to examine your recovery options and work towards a business rescue via a relevant insolvency proceeding we can help. Likewise, if you’re simply trying to bring your company to an end without hassle we can make sure everything goes smoothly. Send us an email or call us on 0800 644 6080 for free director support and advice.

Keith Tully

Partner

0800 644 6080
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