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
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 January 26.
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.
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.
National Videogame Arcade
Kelly Burton • Leisure & Hospitality • Administration
Image from GameCity.org [http://gamecity.org/]
The National Videogame Arcade is a unique national centre which is dedicated to history and development of computer and video games. The museum itself contains many rare and original videogames and consoles as well as a Toast Bar which serves a wide array of toast-based snacks.
Over its time, it has also been involved in working in collaboration with Arts Council England, Times Educational Supplement, Wellcome Trust and the British Library to name a few. These projects and collaborations focused on developing the role of videogames in culture and education.
Home of the acclaimed GameCity festival, The National Videogame Arcade in Nottingham, sadly fell into cash flow difficulties earlier this year despite an increase in its footfall. An eleventh hour investment by a director-led consortium, led by director Iain Simons, saved all 40 jobs at the increasingly popular tourist attraction and museum.
The cash flow difficulties led to the destination being taken into administration, Wilson Field’s Andy Wood and Lisa Hogg were appointed as joint administrators on 19th August 2016.
Andy Wood, an insolvency practitioner at business turnaround and insolvency specialist, Wilson Field, said;
“The investment story behind the consortium is based on the passion that Iain Simons and his staff have for the GameCity project.
“We were appointed as administrators after the company fell into financial difficulties, despite growing in popularity. The consortium of investors could clearly see the potential to turn the business around and with support from the staff, GameCity has a new future.”
Director of GameCity and investment consortium leader, Iain Simons, was very happy with securing the last minute investment and the service he received from ourselves; “The NVA is like no other facility within the UK and is rapidly growing in popularity. It was devastating to us when we realised that the business was in financial difficulty, but we knew it could be overcome.
“I have to give all credit to the staff here who volunteered to work without pay when we announced that the business was in trouble and this undoubtedly allowed us the time to pull together a consortium of investors to give the facility a bright new future and secure those jobs.
“GameCity is rapidly picking up pace and the Toast Bar, National Videogame Arcade and our collaborations with new partners in the UK and beyond are proving to be just as popular as we’d hoped.”
For more information on GameCity visit http://gamecity.org and for further information about our insolvency procedures, call us on 0800 901 2475.
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