Creditor arrangements
If possible we will seek to assist management in negotiating informal arrangements. Where this is not possible (because creditors like HMRC wish to have additional safeguards) we do specialise in Company Voluntary Arrangements ("CVA"s).
A CVA is a real alternative to Liquidation or Administration. It is where a company makes a proposal to its unsecured creditors to pay all or part of its liabilities over time, normally from future profits over say a 3 year period.
They work on the basis creditors will be better off voting for the CVA compared to Liquidation. Once agreed by 75% of creditors at a general meeting the proposal (which is monitored by a supervisor) is binding on all creditors.
Advantages
- Provides the Company with cashflow and time to implement a turnaround plan
- Directors remain in control of business which continues to trade;
- Creditors may be more likely to agree to write off part of their debt if they know all creditors are being treated equally.
- Crown may be more likely to agree as there are clear terms which the company must comply with
Disadvantages
- There is some cost involved in preparing the proposals (although typically less than the cost of Administration or liquidation)
- It is admitting to creditors the company is insolvent, so if they don't agree, trading on may be difficult.
- It has no impact on the position of secured creditors like the Bank.
Protection from creditors
The principal ways for a company to protect itself from its creditors are:
Company Voluntary Arrangement (CVA)
A company voluntary arrangement is an agreement between a company and its creditors which allows the trading to continue and the directors to retain the control of the company whilst it repays its liabilities, either in part or in full over a period of time.
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| Administration
Administration provides protection from creditors taking action against the company while the administrator assesses if the company can be rescued as a going concern or whether a better result for the creditors can be achieved compared to a liquidation. If appropriate the company can continue to trade during an administration.
Administration provides specific protection against
- Legal action
- Enforcement action by the landlord
It can be used to sell the business as a going concern in situations where the company is insolvent and it is critical to ensure the process cannot be challenged.
To find out more please contact...
Liquidation – Solvent and Insolvent
If there is no prospect that your business will continue and your company's affairs simply need to be wound up, then generally, it will be necessary to liquidate.
Where there are sufficient assets to meet the company's liabilities then a solvent or members' voluntary liquidation will be appropriate. This is normally driven by the tax advantages of distributing surplus cash as capital rather than income.
If your company's liabilities exceed its assets, then either a creditors' voluntary liquidation or compulsory liquidation will be the appropriate course of action.
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