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 consolidated monthly sum. All interest is frozen and creditor pressure is halted for arrangement’s duration; often five years. Once the arrangement concludes, all remaining debt is written off.
More information about Company Voluntary ArrangementsAdministration
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.
More information on administration
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 is 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 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.
How to apply for a CVAAdministration 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.
How to put your company into administrationIn summary
Both Company Voluntary Arrangements (CVAs) and administrations are formal insolvency arrangements for limited companies struggling with 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 without obligation, and our friendly advisors are on hand to offer regulated, impartial advice.
Case Studies
Catering Butchers
Kelly Burton • Leisure & Hospitality • Administration
A previously successful, family-owned and managed catering butchers saw its turnover eradicated by the COVID-19 outbreak.
Following a review of all the options with the team at Wilson Field, the directors decided to appoint Wilson Field as administrators.
Kelly Burton, director and insolvency practitioner at Wilson Field added:
“Like many over the pandemic, unfortunately there were some difficulties encountered as the business struggled to keep up its strong sales. However, we are continuing to release the assets for the benefit of the creditors.”
Due to a lack of funding, the business unfortunately ceased to trade; however, the administrators have managed to secure the debtor ledger and a sale of the remaining tangible assets for the benefit of creditors.
Aristocrat Pet Supplies
Kelly Burton • Retail • Administration
The business and assets belonging to a Sheffield online pet supplies company are up for sale. Aristocrat Pet Supplies, a family-owned and run business, milled its own feed and seed on-site in Sheffield and has been trading for over 25 years selling agricultural raw materials, livestock, textile raw materials and semi-finished goods.
Sheffield-based insolvency specialists Wilson Field were called into the firm after it experienced increasing pressure and competition online. Andy Wood and Lisa Hogg were appointed as joint administrators for the company on 26 January.
Wilson Field is trading the business in the short term with a view to finding a potential buyer for the company based on Holbrook Green Industrial Estate near Sheffield.
Andy Wood, associate director and insolvency practitioner at Wilson Field said:
“The business has encountered increased competition in recent years, principally from discount stores which have reduced margins.
“It has been on the market for several months but has not attracted any significant interest so far. As administrators, Wilson Field is trading the business in the short term to maximise realisations on a reduced staff base of seven.”
Aristocrat, which employed 19 staff, offered a range of pet supplies including dog and cat treats, chews, small animal bedding, wild bird supplies, poultry and aquatic food.
Silcox Coach Company
Kelly Burton • Automotive • Company Voluntary Arrangement (CVA)
Pembrokeshire-based Silcox Coach Company, which operates school transport as well as local bus services, has been placed into administration today.
Despite attempts by administrators from Sheffield-based Wilson Field to secure a buyer with various interested parties, the 134-year-old company, which operated a fleet of 65 coaches and buses from its base in Pembroke Dock, has now ceased trading.
Insolvency practitioners Kelly Burton and Joanne Wright from Wilson Field Limited were appointed by shareholders after the company experienced financial difficulties and as a result all 92 staff jobs have been made redundant.
However, in the region of 50 staff have been re-employed by Edwards Coaches of Pontypridd who have been granted the local authority contracts previously operated by Silcox.
Kelly Burton, director and insolvency practitioner at Wilson Field said:
“Silcox Coaches was a fourth generation bus and coach operator and over the years provided various forms of transport services latterly focussing local authority community bus routes, school services, coach hire and coaching holidays.
“The company had an excellent reputation within the industry, the local community and its clients. Initially there were a number of parties interested in buying the business and assets and we had hoped to save all the jobs of the loyal workforce. Sadly, despite our best efforts none of these came to fruition. On the positive side, Edwards Coaches of Pontypridd have re-employed approximately 50 of those staff.”
As well as office accommodation in Pembroke Dock, Silcox also occupied a small travel office in Tenby and a large bus and coach compound near the offices in Pembroke Dock.
Edwards Coaches is the largest family-owned coach company in Wales employing over 500 staff and operating 260 vehicles. It currently operates National Express coaches from Haverfordwest departing daily to Cardiff, Heathrow, Gatwick London and various other destinations plus transportation for over 8000 students to school or college each day from bus depots all over South Wales.
It also operates coach holidays for 80,000 passengers a year across the UK and Europe and operates The Edwards’ Red Dragon coach which is the official carrier of the Wales Rugby Team.
Travellers who have booked and pre-paid for a holiday with Silcox may be entitled to a refund and should contact either Bonded Coach Holidays (BCH) e-mail: bch@cpt-uk.org or The Confederation of Passenger Holidays UK (CPT) Tel: 020 7240 3131.
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