Q&As

Does putting a company into a formal insolvency process avoid debts of the company being paid?

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Produced in partnership with Caroline Clark
Published on LexisPSL on 20/04/2017

The following Restructuring & Insolvency Q&A produced in partnership with Caroline Clark provides comprehensive and up to date legal information covering:

  • Does putting a company into a formal insolvency process avoid debts of the company being paid?

Does putting a company into a formal insolvency process avoid debts of the company being paid?

Formal insolvency processes such as compulsory or creditors' voluntary liquidation, administration or company voluntary arrangement bring an end to creditors' ability to bring legal action against a company for the recovery of debts. When a debtor company is subject to one of these insolvency processes it does not automatically mean that there will be no payment to creditors; whether there will be a payment to creditors from the insolvency process (called a dividend in insolvency legislation) will depend on the realisable value of the assets owned by the company and the amount owed to creditors.

If a company goes into liquidation it will cease to trade, all its assets will be sold and the company will ultimately be dissolved. If a company goes into administration it may continue to trade for a short while. In the vast majority of administrations all the company's assets are then sold, possibly in

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