Shells,
This is a tough situation and the only consolation is that it happens to a lot of good business people and isn't usually a personal failure. It's down to the details, but unfortunately luck and timing are often part of the details.
The quick answer comes down to whether you think it is possible to rescue the company if your debts could be diminished (administration), or whether you think it really is time to wind it up (liquidation). It involves more than optimism/pessimism, because in many businesses any slow down can lead to a loss of skills, customers, irreplacable stock, etc which can make rescue practically impossible. Rescue isn't another word for 'delaying the inevitable', either.
You know you have to act when you fail an insolvency test. Two tests are the cash flow and the balance sheet tests. Cash flow test applies if a company is unable to pay its debts as they fall due. Balance sheet test is if the value of the companys assets is less than the amount of its liabilities. Sounds like you are failing the first one. Once you know you are failing these tests you have to take action or risk damage to your ability to be a company director in the future.
There are different types of Administation and Liquidation. As I say above, rescue potential is the key difference between them. In Liquidation, another difference is whether you bring it on yourself (voluntary) or it is brought on you (compulsory). You don't mention angry creditors with court orders, so I will assume you are in the voluntary group.
If you are a small company look at the Company Voluntary Arrangement (CVA). It's fairly new legislation (2003) and could be useful. Best thing is that it puts a moratorium on creditors trying to wind you up - it's for 28 days initially but can run for a further 2 months i.e. 3 months total. The aim is to get some breathing space so you can work out the best deal for creditors - at least better than liquidation or administration. You need shareholder approval and 75% by value of creditors to agree. BUT - if you are more concerned about "future debt" i.e. the cost of running company until revenue comes it is not obvious that this will help much.
There are two types of voluntary Liquidation - Members' Voluntary Liquidation and Creditors' Voluntary Liquidation. Receivership and liquidation means that the company has no future and all that is sought is the maximisation of the proceeds of the sale of its assets or business. You have to be able to pass the solvency test (and affadavit that) in order to consider the first one, so most times companies find themselves in CVL (I think it is >80% by frequency). CVL requires a resolution from the shareholders (members) and from the creditors. You hire an IP to manage it for you - the prices you quoted seem reasonable in my limited experience, which hopefully is a sign that the debts are small.
The pay-out procedures are fairly complex but here's a simple version:
- First ones to get paid are preferential creditors. This is often employees and they can get paid by the Redundancy Payments Office (RPO) using form RP1. This is capped at the statutory maximum. This is then taken out of the assets.
- Next up are the Floating Charge Holders (FCH) - in this case the Bank. If there isn't enough in the pot, the Bank will call in your personal guarantees (but can do so up to the maximum you committed, and that may be between two or more of you).
- Then there are the unsecured creditors. These days they use a formula to hold back a portion (the "prescribed part") for these but it will still probably only be pennies in the £.
There is a lot more I could add but enough already. The goverment website - url will contain "insolvency" and ".gov.uk has a good page titled "howtowindupyourown.htm".
Best of luck and keep smiling as best you can.
