Is your company in financial trouble - consider a Company Voluntary Arrangement If your business is in difficulty, you may be better off undertaking a Company Voluntary Arrangement rather than struggling to raise the funds necessary for a Pre-Pack Administration.
If your company is in difficulty, you may be better off undertaking a Company Voluntary Arrangement rather than struggling to raise the funds necessary for a Pre-Pack Administration.
Over the past year, much has been written in the press about the relative merits of Pre Pack Administration - commonly known as Phoenixing. The pre-pack process involves setting up a new company which is then used as a vehicle to buy the assets of a failing business.
The clear advantage of a pre-pack administration is that the new company can trade on without the burden of legacy debts and perhaps onerous rent and lease agreements.
Pre-Packs reliant on cash lump sum
However, the pre-pack process can only take place if a cash lump sum can be made available. To complete a pre-pack, the old company's assets must be purchased at a fair market price and the proceeds distributed to its creditors. Depending on the value of the assets, this may require a lump sum of many thousands of pounds.
In the current economic climate, it is not always possible to raise the capital required to fund the purchase of business' assets. Where this is the case, the directors may well be better off considering one of the other business turnaround solutions namely Company Voluntary Arrangement.
A company voluntary arrangement (CVA) is formal agreement with your creditors to pay a reduced amount based on what you can afford. These payments last for a fixed period (normally 5 years) after which any outstanding debt is written off.
In this way, a CVA can enable a business to write off 50% or more of its debts while allowing it to continue to trade normally. The company remains intact and valuable resources are retained. The agreement takes into account all unsecured debts including those owed to HM Revenue and Customs such as PAYE and VAT.
Company Voluntary Arrangement requires no up-front cash
One of the significant advantages of the company voluntary arrangement over the pre-pack process is that it does not require any up-front cash. The company must be able to make contributions to its creditors each month but these are funded from ongoing trading revenues.
A licensed insolvency practitioner has to be involved to implement a CVA and therefore there are associated fees. However, these are taken directly from the company's normal monthly CVA payments. Neither the company nor its directors have to find any additional cash to pay fees.
An additional significant advantage of a CVA for company directors is that because the business is not wound up, there is no investigation into the activities of the directors. This means that the question of wrongful trading does not come up.
In today's economic environment when many businesses are struggling to keep their heads above water, the opportunity to combine a restructuring programme with the ability to write of company debt can be a lifesaver. This is exactly what a CVA will deliver without the investment of any additional funds.
What happens to the directors if a company is wound up?
Once a company is being wound up a Liquidator will be appointed. The liquidator will undertake an investigation into the conduct of the directors to see whether they have knowingly allowed the business to trade while insolvent thus making the creditor's position worse. If this is the case, a director may face being disqualified and held personally liable for the company's debts. As a Director we look at the options you have.What will having a County Court Judgement do to my company
If a county court judgement remains unpaid, this could lead to more serious action being taken against the business. We look at the impact and what you can do.Company debt restructure to improve cash flow
Ensuring that enough cash is available to maintain their business must be a priority for companies. Those that do it well will survive. Those that do not are likely to fall. As such identifying problems and implement solutions which may require a radical restructuring of debt must be a priority. We discuss some of the solutions available.