Company Voluntary Arrangement (CVA) or administration?

When a company is struggling to keep up with paying its liabilities, creditor pressure can lead directors to pursue formal insolvency procedures. Two common choices for directors who wish to continue with their business include Company Voluntary Arrangements (CVAs) and administration. Whether a CVA or administration is the most suitable option for your company will likely depend on its financial resources and the business’ viability in its current structure.

Company Voluntary Arrangements

One of the most popular insolvency arrangements, a Company Voluntary Arrangement (CVA) is a formal debt repayment scheme, combining all its unsecured debts into one compounded monthly sum. All interest and creditor pressure freeze for arrangement’s duration; often five years. Once the arrangement concludes, all remaining debt is written off.

Administration

Administration is an insolvency process that protects companies from creditor action. It allows time to decide the best course of action for the company, be that selling it and its assets or producing a restructuring plan.

CVAs or Administration, how do they work?

CVAs consolidate all your company’s unsecured debts into one monthly outgoing tailored to what you can afford. Interest on debts is frozen for the arrangement’s duration, and any creditor pressure alleviated. The arrangement usually lasts five years, and after the final payment, any remaining unsecured debt is written off.

Administration is also a formal insolvency process. It involves a licensed insolvency practitioner (IP) taking control of the company, making the necessary changes to remove elements that have become unprofitable. One of the main goals of administration is to achieve better results for the creditors than if the company were to be wound up. While in control, the IP may choose to restructure the business or get it into a position where it could be sold. Creditor pressure ceases for the administration’s duration.

When do they work best?

Applying for a CVA would be more suitable for when the company’s core business is viable, but its debts risk pushing it into insolvency. The process allows the company to continue trading while repaying its debts, without the need for major restructuring. The process offers the company a sense of continuity while allowing time to pay off or reduce its debts. CVAs can also be useful if the insolvent company can’t meet the costs of an administration or the funds to buy back the assets in a pre-pack. CVAs also work if you wish to nullify some burdensome company contracts but keep the more beneficial ones.

Administration may be a more practical solution if the company doesn’t have the funds to repay its debts, company assets are at risk, or if creditors have rejected a proposed CVA. They may act as a feasible backup plan if a CVA fails, or more substantial restructuring is needed outside of repaying the debts.

We’d recommend administration where there is evidence that: the company can be rescued as a going concern, the process would achieve better results than if the company were wound up, or property and assets can be realised to distribute to secured or preferential creditors.

In summary

Both Company Voluntary Arrangements (CVAs) and administrations are formal insolvency arrangements for limited companies struggling from high levels of debt and creditor pressure.

A CVA will be appropriate if a company would be viable if not for its financial issues, which it could recover from if given time and guidance.

If a CVA won’t rectify the underlying financial issues, administration is an alternative which protects against creditor action. Undergoing administration relieves the creditor pressure and allows us to look at restructuring the company, removing the unprofitable elements, and allowing some breathing space while deciding the next course of action.

How we can help

If your company is struggling with intense creditor pressure and severe debts, speak to us before the situation becomes unmanageable. We can assess the company’s current situation and structure to decide which route out of insolvency is right for your business. All initial consultations are free of charge and obligation, and our friendly advisors are on hand to offer regulated, impartial advice.

Case Studies

Designer Recliners Limited

Kelly Burton • Manufacturing • Administration, Company Voluntary Arrangement (CVA)

A Sheffield furniture manufacturer and upholster has relaunched offering a smaller, more specialised range of products.

Anico Interiors Limited, which included reclining chairs for the elderly, had suffered cash flow problems and issues with profitability.

Designer Recliners Limited, managed by director Nick Wall, has purchased the assets and business of Anico saving all 11 jobs.

Andy Wood and Robert Dymond from Sheffield business turnaround experts Wilson Field were appointed joint liquidators on 8 June and advised on the sale of the 14-year-old company, based on Orgreave Crescent at Orgreave Industrial Estate, as a going concern.

Andy Wood, associate director and insolvency practitioner at Wilson Field said:

“Historically, the company offered a wide range of products but has now streamlined its offer to customers and cut out some unprofitable lines, as well as re-vamped its web site.

“Directors took advice from Wilson Field with the business sold to new company Designer Recliners Limited as a going concern, safeguarding all 11 employees’ jobs. The new company will offer the same service and standards under the same management team but focus on a smaller range of specialised products.”

The company employs skilled staff including upholsterers, seamstresses and cutters and was set up in 2002 by Nick Wall.

Print On Solutions Limited

Kelly Burton • Service Agency • Administration

A Leeds print company has been bought out of administration saving all 54 jobs.

Print On Solutions Limited was set up in 1999 years ago and went from start-up business to the largest envelope overprinter in the UK with offices in Leeds and Bury, 12 litho presses and six digital presses.

Administrators Kelly Burton and Joanne Wright from Sheffield business turnaround experts Wilson Field were appointed joint administrators on 11 April after the company, based in Century House, Holbeck, ran into financial difficulties following an ongoing dispute relating to a significant contract.

The directors took early advice and the business was sold to new company WEPOS Limited as a going concern saving all 54 employees’ jobs.

Kelly Burton from Wilson Field said:

“Following discussions with the directors, the business was sold to WEPOS Limited as a going concern, safeguarding all 54 employees’ jobs. The new company will offer the same service and standards and will operate under the same management team.”

In 2003 Print On expanded by moving to a 12,000 sq ft, purpose-built factory in Leeds, designed to offer the business a state-of-the-art platform for growth.

The expansion of the group was through strategic acquisitions and mergers of envelope manufacturers. Tower Envelopes in Bury merged with Print On in 2010 and became the Lancashire division.

Precision Engineering Business

Kelly Burton • Construction & Engineering • Administration

A bespoke precision engineering business, working predominantly in the automotive and aeronautical sectors, found itself experiencing cashflow difficulties caused by an increase in costs due to the uncertainties surrounding Brexit, and the loss of a key member of the sales team.

When the company’s largest customer reduced its spending by 50%, the director felt the business couldn’t continue and sought advice from the team at Wilson Field.

Wilson Field marketed the business and assets for sale, and a sale of the tangible assets was completed immediately following the administrators appointment, to an unconnected third party.

Kelly Burton, insolvency practitioner and director at Wilson Field, said:

“With so many complications surrounding Brexit, coupled with the loss of some key staff, the company experienced some cashflow difficulties it could not get out of.

There was a positive outcome in the end as some of the tangible assets within the company were sold, which meant a good return for creditors.”

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