A Voluntary Arrangement may be suitable where the core business is viable but the company is experiencing severe cash flow difficulties or is burdened by historic debt.
Informal negotiations between creditors and the company may have been unsuccessful and creditors may be threatening action that would have a detrimental impact upon the business.
A Voluntary arrangement is a legally binding contract between the company and its creditors to repay a percentage of the outstanding debt over a period of time (usually between 3 and 5 years). The company continues to trade, usually making defined contributions to the historic debt from future profits.
A licensed insolvency practitioner is appointed as ‘supervisor’ of the arrangement and will receive the contributions and distribute monies to creditors accordingly (usually on an annual basis).
It is important to receive quality advice from a licenced practitioner when drafting proposals to creditors. Their experience in dealing with creditors, in particular HMRC, will have a direct impact upon the success or failure of the arrangement. Creditors will need to be assured the proposals are viable and provide a better return than if the company was wound up but this will need to be carefully balanced with the needs of the company in setting a realistic and achievable contribution level.
Good advice should ensure that the business issues that caused the initial difficulties have been addressed, that the working capital is sufficient to meet the demands of the business and that the impact of the CVA on the business going forward has been fully understood. It is often a good opportunity to assess the business as a whole and make any necessary changes at the same time.
CBA have entensive experience in dealing with VA’s but in particular in advising the business going forward, working with the VA and addressing the situation as a whole.
Whilst informal negotiations may be an alternative where advice is sought early enough, often a formal VA is the only credible option further down the road. The formal structure gives creditors more comfort and security, therefore encouraging support from all the stakeholders.