When a business fails, it can either be reorganized or dissolved depending on the
circumstances. A number of ways exist for business failure to occur, including a poor
rate of return, technical insolvency, and bankruptcy.Some causes of business failure include:(1) Poor management
(2) An economic down turn affecting the company and or industry
(3) The end of the life cycle of the firm
(4) Over expansion
(5) Catastrophe
A voluntary settlement with creditors permits the company to save many of the costs
that would be present in bankruptcy such a settlement is done out of court. The
company can either continues or liquidated and is initiated to enable the debtor firm to
recover some of its investment.In sustaining the firm’s existence, there may be plans for an extension a composition
creditor control and integration of each of the above. In the case of Insurance
Companies in Sierra Leone, the Insurance ACT 2000 does not allow for any voluntary
winding up of a company, except for the purpose of effecting an amalgamation or
reconstruction or on the ground that due to its liability it cannot continue in business.If no voluntary settlement is agreed upon, the company may be put into bankruptcy by
its creditors. The bankruptcy proceeding may either reorganize or liquidate the firm.
Bankruptcy takes place when a company cannot pay its bills or when liabilities are
greater than the fair market value of the assets. Here, legal bankruptcy may be
declared.A company may file for reorganization under which it will formulate a plan for
continued life. The trustee is a reorganization plan is required to value the company
(whether liquidation or reorganization required), recapitalise the company, and
exchange outstanding debts for new securities.