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A Typical Review Report

Dear Mr Bloggs,

JOE BLOGGS LTD

I refer to our meeting held earlier today. In this letter I summarise the various alternatives available to the company and the option that is recommended.

Introduction

On the 15th December 2001 your largest creditor, to whom you owe £50,000, issued a winding up petition against your company.

That petition is to be heard by the court on the 31st January 2002. If nothing is done before that date it is likely that the court will make a winding up order on the 31st January 2002. The Official Receiver would then be appointed liquidator of the company and the company would cease to trade.

Present Financial Position

Schedules are attached which set out:

• a statement of affairs

• schedule of:
  
  • secured creditors
  • preferential creditors
  • unsecured creditors
    
    
• integrated forecasts, for the next twelve months of:
  
  • profits and
  • cash flow and
  • balance sheet movements
    
    
• a summary of the company profit and loss account and balance sheet for the last three years.

You advised me that the company has been trading profitably for the last few years until a bad debt of £120,000 was experienced in June 2001. The core profitability of the business remains unchanged but the company cannot pay creditors when due as a result of the cash lost from the bad debt.

The company needs time to re-arrange its affairs and that time can be arranged by freezing creditors.

The alternatives

1. Doing Nothing

For the sake of completeness I only mention "doing nothing" to show that this is not really an option. If the directors "do nothing" the company will be lost when a winding up order is made on the 31st January 2002.

2. A Company Voluntary Arrangement (CVA)

It is likely that that creditors would accept a CVA proposal. There is however, insufficient time between now and the 31st January to :

• prepare that proposal
• lodge that document in court
• call a creditors meeting
• hold that creditors meeting to consider the proposal.

As a CVA is the best possible outcome, you need to take a preliminary step to first freeze creditors to allow time for a CVA to be drafted and a creditors meeting held.

Creditors can be frozen in this important period if the court were to make an administration order on your application.

Administration order

At our meeting earlier today I handed to you Purnells guide to Administration Orders, which addresses those requirements in detail.

I recommend that a member of my staff attends at your office for a number of days to prepare the Rule 2.2 Report and other documents needed to apply for an administration order.

At the same time we would commence the preparation of the CVA proposal. That proposal would be finalised and circulated to creditors soon after the granting of the administration order.

Costs

At our meeting I handed to you a schedule of the charge out rates of each member of the firm who would be engaged in this matter. I estimate total costs at £............ plus VAT.

Should you wish to give Purnells instructions please reply by return facsimile and arrangements will be made for three members of staff to be at your offices at 9.00am tomorrow morning.

Yours sincerely,

Purnells

Note:

From 15th September 2003 new rules relating to administration orders come into force as a result of the Enterprise Act.

As and from that day:

• a rule 2.2 report is not needed
• an administration can commence in many circumstances without even an application to the court.

The new regulations are aimed at making a company rescue more practicable and less costly.