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.More information about Company Voluntary Arrangements
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 alleviated. The arrangement usually lasts five years, and after the final payment, any remaining unsecured debt is written off. Additionally, a CVA requires no upfront fees, making it appealing for companies with little in the way of funds.
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.How to apply for a CVA
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.How to put your company into administration
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. There are no upfront costs, so it is manageable for directors with little finance available.
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.
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