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.
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 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.
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 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
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.
ARB (Sound Vision Light Power) Limited
Kelly Burton • Leisure & Hospitality • Administration
Wilson Field has secured a new future for a Banbury headquartered events management company, which boasted clients including Crufts, Tour of Britain and Virgin London Marathon after it was bought out of administration.
ARB (Sound Vision Light Power) Limited was established in September 2014 and specialised in event hire including providing audio visual solutions equipment, hire and installation.
The company, which traded from Coton Cottage, Chacombe near Banbury, called in administrators from Sheffield-headquartered Wilson Field for formal insolvency advice.
The company, which has an impressive client list and relied solely on sub-contractors as and when needed, suffered VAT and HMRC issues as a result of a period of illness.
Kelly Burton and Lisa Hogg from Wilson Field were appointed as joint administrators on February 20 and concluded a pre-packaged sale of the business and assets for an undisclosed sum to ARB Motors Limited, lead by the same management team.
Kelly Burton, director and licensed insolvency practitioner at Wilson Field said:
Wilson Field was brought in to look at the situation of the business.
The focus on the company had diluted during a period of illness of one of the two directors. A debt was due to HMRC and a repayment proposal was rejected resulting in the need to protect the business and assets via a formal insolvency procedure.
The pre-packaged sale means the business, which was an established player in event management at large scale events, has a bright future moving forward.
The loss of a major employee’s input through illness can harm an organisation and it is important for businesses to seek help should this arise. Timing is essential to keep focus on the business.
ARB has combined experience of more than 100 years and provided hire equipment such as indoor and outdoor PA systems, single and double-decker commentary units, street sound vehicles, exhibition TVs, stage lighting and mobile power in both primary and secondary distribution.
Berks Healthcare Services Limited
Kelly Burton • Healthcare • Administration
Wilson Field has advised on the sale of a Slough-nursing agency which was bought out of administration saving all 7 jobs.
Berks Healthcare Services Limited, which traded as Enchor Healthcare Services, specialised in providing healthcare professionals for the public and private sector.
It supplied registered general and mental health nursing staff, together with unqualified support and ancillary staff, to private hospitals and care homes in the areas local to the company’s offices in Slough, Portsmouth, Birmingham and Luton.
The company, headed up by healthcare professionals, called in administrators from Wilson Field after suffering from a fall in turnover, which left it struggling to meet unsustainable historic legacy debt. It had also been issued a winding-up petition from HMRC.
Kelly Burton and Emma Bower were appointed as joint administrators on 14 June 2018 and concluded the sale of the business and assets for an undisclosed sum to an unconnected company Connect Care & Support Limited, also based in Slough.
Kelly Burton, director and licensed insolvency practitioner at Wilson Field said: “The company had a turnover in the region of £2.9m per annum in 2017. However this is a very competitive marketplace, which is primarily price driven and recent minimum wage legislation changes had also impacted on the company’s potential profit margins.
“As administrators, we sought a purchaser for the business.
“This pre-packaged sale to Connect Care & Support Ltd saved seven permanent jobs as well as numerous temporary agency staff.
“It has also mitigated employee termination claims in the nature of wage arrears, accrued holiday pay, redundancy and pay in lieu of notice estimated to total £29,576 as the liabilities have transferred to the successor business under the TUPE regulations.
“This means the business has a new future moving forward.”
Berks Healthcare Services Ltd was incorporated in January 2015, but can be traced back to February 2007. Enchor Health Care was recognised and registered as Recruitment Consultants providing both permanent & temporary staffing solutions to many different Health and Social Care settings. It also had supported living and rehabilitation centres.
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