How do businesses with cash flow problems avoid closure?

A lot of times when we advise businesses in financial distress they are looking for an outcome that allows them to continue trading, it’s our goal to provide a solution that best fits each business individually and provides the most positive outcome possible.

To help illustrate this process, I thought it would be useful to highlight one of our recent cases;

We were approached to aid a software company producing programmes for the education sector; they had been trading for six years and business had been good in this time.

Recently they had won a contract to provide local schools with a new software product; if it was successful it would be rolled out nationwide providing an excellent and extremely profitable opportunity for the business. However the directors noticed that despite this, turnover was down. Focus had been taken away from the main core of the business while the new software was developed and so other areas had been allowed to slide.

The new software product had taken longer than anticipated to produce and had increased in cost meaning that problems with cash flow began to arise resulting in a build-up of debt that needed to be paid immediately.

We assessed the business’s situation and worked closely with directors and their accountants to ascertain all possible solutions. After thorough consultation we advised the best option to allow the business the time and relief from its creditors that it needed was to implement a Company Voluntary Arrangement (CVA).

With the CVA in place the pressure of debts on the company was removed, they were able to complete their software trial successfully and begin nationwide distribution as a result; even managing to become profitable enough to end their CVA early with a lump sum payment.

If advice is not sought and solutions found, situations like these can very easily progress into failed businesses; some only require time to get back on their feet, out from under the pressure of debts caused by poor cash flow.

Have you come across clients in this very situation? What are the biggest financial concerns facing your clients right now? Please drop me an email at a.fisher@focusinsolvencygroup.co.uk with your experiences, I would be happy to reply with any advice you might need for your clients.

Debt Advice Open Days

How are we able to complement the services you offer to your clients that are struggling with cash flow or debt problems?

We consider this question regularly, which in turn enables us to evolve, improve and expand upon the services we offer to both you and your clients allowing us to be tailored, relevant and convenient.

Focus Insolvency Group’s mission statement is to be ‘the UK’s number one premier rescue specialist for struggling businesses & consumers’ and so we are currently expanding our services and benefits nationwide.

We are increasing our nationwide coverage with a series of fixed location, easily accessible regional advice open days.

Our open days provide an opportunity for clients struggling with cash flow issues and debt to gain valuable face to face advice and guidance from an expert on a personal level at what is likely to be one of the most difficult times of their life. Appropriate solutions and strategies can be discussed in detail and implemented immediately to relieve the debt burden. Each client is provided with a personal appointment and as such booking is a necessity to make sure we set aside an appropriate amount of time for each person.

In our experience a level of empathy and an understanding personal service are core values and they run deep throughout Focus Insolvency Group, providing these values face to face alongside best advice is essential.

Open days are not only a perfect opportunity for you to refer clients in financial difficulty for advice, but also for us to meet our professional partners face to face, we’re always keen to forge new and mutually beneficial relationships as well as developing our current alliances.

You can view the current open day schedule on our website.

We will be complementing these open days by launching regional offices across the UK; currently these areas will include London, Bristol, Birmingham, Cambridge and York.

We attribute a large part of our success to date to having the right people in the right places ensuring that service remains our number one priority for our professional partners and our clients.

We are keen to know more about the challenges you face when you encounter a client with debt burdens and cash flow problems so that we can continue to develop the services we provide.

Managing Director and Licensed Insolvency Practitioner at Focus Insolvency Group, Anthony Fisher is happy to provide any advice you may need and will personally reply to every email or comment. You can contact him direct on a.fisher@focusinsolvencygroup.co.uk or call direct on 01257 257045.

If you are interested in coming along to one of our regional open days or would like to refer a client for advice, then you can email Andy Platt on a.platt@focusinsolvencygroup.co.uk or call direct on 01257 257038 to book an appointment at our next event in your area. We look forward to hearing from you.

The pitfalls of insolvent trading

Trading while insolvent can be a grave concern for directors in the current financial climate; there are many dangers that can affect directors of insolvent companies, some of which can lead to very serious and life altering consequences. It is important to be able to recognise the signs of insolvency and act upon them immediately in order to limit any damage to the business and director.

Firstly let’s explore exactly what being insolvent means for a business.

It can be established whether a business is insolvent or not by answering three simple questions.

1. Can the company pay its debts as and when they fall due?
2. Does the company owe to its creditors more than the worth of its assets?
3. Has the company had any CCJ’s or statutory demands made against it?

If the criteria of these questions cannot be satisfied then the business is more than likely insolvent and urgent advice should be sought from a licensed insolvency professional. Even if just one of the criteria cannot be met it still indicates insolvency.

When an insolvent state is determined it is important to act quickly as it immediately opens directors up to a numbers of dangers.

Personal Guarantees

A creditor with a personal guarantee will pursue the guarantee should a limited company find itself in financial difficulties. Whilst the life of a company might come to an end by way of formal insolvency procedures such as Creditors Voluntary Liquidation or being subject to a Winding-Up order, the creditor can still rely on the Personal Guarantee to look to recover any sums still outstanding from the person that gave that guarantee.

Disqualification

Directors may be prevented from holding a responsible post for up to 15 years if the Insolvency Service deems them unfit to be concerned in running a limited liability company.

Personal Liability for Wrongful Trading

Failure to take advice and implement appropriate procedures can make the directors potentially personally liable for the company debts as a result of the wrongful trading provisions in the Insolvency Act 1986. The amount the directors are likely to be liable for if found guilty is the actual amount that creditors have lost as a result of continuing to trade when they should have known the company was incapable of surviving in its current format.

Recovery of an overdrawn Directors Loan Account and Dividends

If your limited company should enter into Liquidation, the Liquidator will look to realise any assets. It might not have occurred to you but if you have an overdrawn Director’s Loan Account, this will be considered an asset of the Company and will be vigorously pursued by a Liquidator for the full amount that is overdrawn.

Fines or Imprisonment

Breaking the terms of disqualification can impose a fine or imprisonment

If you think your business may be insolvent or if you have concerns regarding any of the possible dangers to directors above then it is important you seek professional advice as soon as possible. Focus Insolvency Group are licensed insolvency practitioners and are able to offer free impartial advice to business owners and individuals alike, contact us today.

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Business Insolvency: Frequently Asked Questions

We are currently in one of the most difficult and unpredictable financial climates that businesses have ever had to endure and the fear of insolvency is very real. However making the decision of talking about the problem is one that is often feared by many directors and business owners typically because they still don’t understand what Insolvency Practitioners are there for and hence remain afraid of them.

Quite simply, a Licensed Insolvency Practitioner is a professionally qualified person with the necessary expertise and experience to deal with and help businesses in financial difficulty.

As Licensed Insolvency Practitioners Focus Insolvency Group specialises in helping and advising all types of businesses whether they are a large limited company or a small sole trader; and in whatever situation they may find themselves in. The following are details of common questions on which our clients have sought our advice:

Q. A lot has been heard on the news about businesses being affected by the downturn in the economy, what should I be watching out for?

A. Increasing overdraft levels, banks reducing or eliminating funding, unpaid bills and no provision for accrued liabilities particularly to HMRC. Sole Traders or Partnerships can find the owners threatened with bankruptcy, whilst limited companies can find themselves having winding up petitions against them for non-payment of debt. Debt collectors and bailiffs can effectively stop businesses trading by taking the remaining working capital or the assets of the business.

Q. What do I do at the first signs of trouble?

A. If debts cannot be paid then it is essential that an Insolvency Practitioner is involved to look at the various options available. The act of taking professional advice at an early stage will mitigate any losses to creditors and protect directors personally. Failure to take advice and implement appropriate procedures can make directors potentially personally liable for the company debts as a result of the wrongful trading provisions in the Insolvency Act 1986.

Procedures can be implemented immediately to protect the company from creditor action including bailiffs and winding up petitions. Once the pressure is off, we can sit down and look at the company trading position and see if it is viable to continue trading going forward. It may then be possible to make a proposal to the creditors, which although may not pay them back all their liabilities will be better than the company being placed into Liquidation and employees made redundant. The company will then be free from debt in 5 years.

Q. Will going bust always be the answer, with the loss of jobs?

A. No. the strategy at Focus Insolvency is to always look at rescuing a viable business and save jobs. Naturally, this is as long as the business is viable going forward and we have management support. We can provide FREE initial advice by sitting down with the business owners and seeing what is available to the creditors perhaps by way of monthly contributions and formulating a proposal to creditors for rescue.

Q. My business has a lot of debt and I do not wish to continue trading. There is a buyer for the assets but he is not willing to take on all those debts, what can be done?

A. An option is to put the company into Administration and sell its assets to an interested buyer. The money received will then be used to pay creditors (after deducting costs). An Administrator only sells the assets of the company not the liabilities and this is far more attractive to a potential purchaser and can be the best result for all rather than Liquidation.

Q. How can I pay for Professional help if my business is struggling?

A. As funds are tight, it is essential that you obtain a FREE consultation from a Licensed Insolvency Practitioner to discuss the options available. Any formal insolvency procedure to rescue or wind up the business will involve costs that are generally paid out of asset realisations.

Remember that legal protection from creditors is available, and it is likely that creditors will accept less than full payment over a period of time given the financial position of the business.

Focus Insolvency Group welcome personal and business enquiries direct and also offers a Professional Partners referral facility to advisors who need help with their clients. If you can identify with anything within this blog for yourself or your client, then it is important that you act immediately, do not be afraid of seeking our advice.

If you have any opinions or questions about this blog, please leave a comment below or get in touch

image from freedigitalphotos.net

Options Available to Struggling Limited Companies – Round-up

Welcome to our round-up blog concluding our series on ‘options available to struggling companies’. If you want to catch up with any of the series so far please see the ‘related blogs’ links at the bottom of this article.

We’ve covered a lot of information over the past six weeks so we’ve brought together the most important points of process and each of the options a struggling company could have available to it. The most important thing to remember is that the sooner you seek professional advice, the more of these options will stay open to you.

One of the first things you need to quickly establish is if your company could be insolvent so take our quick test to find out. Even if you pass the test with flying colours it is still a good idea to seek advice as there might be improvements you can make that could see your business doing even better.

A business health check should be considered a must no matter if you think you might be struggling or not. Even if you’re company is not classed as insolvent; but you’re feeling the pressure, there is usually some turnaround advice that can be implemented to ease the problems and get things back on track. An independent advisor can often see problems and ways to help earlier than directors who are involved in the day-to-day running of matters.

If you think your company might be insolvent then you need to start making some important decisions with the help of an insolvency practitioner, remember that all initial advice will be free of charge so weighing up your options isn’t going to make things worse, it can only ever improve the situation.

One of the most important questions you will likely be asked when deciding what insolvency option best suits your company is do you want to continue trading and attempt rescue as the current company? The next is to ask if the company is able to be rescued. The answers to these along with other aspects of your business (e.g. assets and liabilities) will determine what option suits you best.

Company Voluntary Arrangement (CVA) – Continue Trading

You want to continue trading and have monthly surplus that you can make available to your creditors. Costs are taken from the monthly payment and the balance distributed to creditors. Any remaining debt the company cannot afford being written off after 60 months.

Administration – Continue Trading

The company is rescued as a going concern, an administrator takes over the management of the company until a buyer can be found to maximise returns to creditors. The company will continue to trade as the same business, you may be the one to buy it back or it may be returned to you if the administrator manages to pay all creditors in full. An independent buyer may be found leaving you free of the business. Costs are met from available assets and not personally by directors.

Pre-Pack Administration – Cease Trading

The sale of the company is agreed before the administration. You may be looking to set up a new company with the assets, workforce and premises of the old one effectively closing the first company (ceasing to trade) and opening a new one. Alternatively the company/assets may have been agreed to be sold to someone else leaving you free of the business. In either case the original company will usually cease trading as a result. Costs are met from available assets and not personally by directors.

Creditor’s Voluntary Liquidation (CVL) – cease trading

 Shareholders decide to wind up the company, and it is passed to a liquidator who will sell the assets and maximise the return to creditors. Costs are met from available assets.

 What Next?

Whichever options you consider is most appropriate to your circumstances it is important to remember that the sooner you seek advice, the more likely it will be that you choose the option you want for your company rather than having an option chosen for you like compulsory liquidation. As the statistic below show, liquidations are on the increase meaning that people are seeking advice for their businesses too late and having to take more extreme courses of action that do not enable the company’s rescue.

Focus Insolvency Group are licensed insolvency practitioners and can offer you free and impartial advice, the sooner you seek that advice the better so contact us with any questions you might have either with a comment on the blog or by phone or email.

 We will return next Monday with a new blog so if you have any feedback or want to see a particular topic discussed then please let us know.

Related Blogs

Is My Company Insolvent?

Business Health Check

Turnaround Advice

About Company Voluntary Arrangements

The CVA Process

Is Administration Right for your Company?

About Creditor’s Voluntary Liquidation

The CVL Process

The CVL Process

Last week we brought you part one of our information on Creditor’s Voluntary Liquidation (CVL), this week we conclude with part 2 – the CVL Process.

You can catch up with any of the blogs in our ‘options available to struggling limited companies’ series by clicking on the links at the end of this blog.

Liquidation Process

Stage 1: Advice and Decisions

An insolvency advisor will help you explore your options. They will discuss the company’s financial position with you, review the company’s viability, financial forecasts and background and explain the various insolvency procedures, such as a voluntary liquidation (CVL), Company Voluntary Arrangement (CVA) or even administration and discuss which would be appropriate for your company.

All initial advice and guidance will be free of charge.

Stage 2: Creditors informed of CVL

Your insolvency practitioner will act as the advising member and proposed liquidator. At this stage all creditors and shareholders are written to and informed of your wishes to put the company into voluntary liquidation.

Stage 3: Creditors meeting

The insolvency practitioner writes to the creditors and shareholders informing them of a creditors meeting. The director(s) act as a chairman and the insolvency practitioner conducts the meeting. In most cases no creditors attend the meeting but if they do, questions may be asked over the cause of the company failure.

A statement of affairs that has been prepped by the insolvency practitioner with the help of the directors is given to creditors at the meeting. The creditors officially agree the appointment of the liquidator at this time. Your insolvency practitioner will be the proposed Liquidator however ultimately the appointment decision lies with company creditors (hence the name Creditor’s Voluntary Liquidation).

Stage 4: Liquidation and asset sale

The liquidation commences properly at this point. The assets of the company are sold, the outcome of this sale is reported to the creditors and if any value is left after the liquidation process, payment is made for settlement of the creditor’s claims.

Once the company is in liquidation, your role as a director would cease and your involvement from thereon would be minimal.  You will have to pass over any company books and records and complete a director’s questionnaire regarding your role within the company.

After CVL

After the company is liquidated you do still have the option of being a company director, there are however some strict rules around the reuse of a company name and restarting the same business. Professional advice should be sought in the case of a ‘Phoenix Company’.

If you are planning to set up a new company and feel the old company’s assets are of benefit to your new venture then you will be given the opportunity to make an offer for any assets providing it reflects the valuation figures.

Otherwise, you will be free of the company debt and able to move out without the burden.

What Next?

If you would like any help or advice with decisions on liquidation or any of the other insolvency and turnaround options we have covered in this series then remember that Focus Insolvency Group are here to offer you free and impartial guidance. Get in touch today.

Next week we will be gathering together everything we have discussed in our ‘options for struggling limited companies’ series so far so you can see all the choices in one place.

If you have any questions or feedback please get in touch or leave a comment below.

Related Blogs

Is My Company Insolvent?

Business Health Check

Turnaround Advice

About Company Voluntary Arrangements

CVA Process

Is Administration Right for your Company?

About Creditor’s Voluntary Liquidation

Options Available to Struggling Limited Companies  – Round Up

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About Creditor’s Voluntary Liquidation

Welcome to our latest blog in this series about the options available to insolvent limited companies. We are a couple of days late this week due to the Jubilee Celebrations; we hope you had a really great extra-long weekend.

You can catch up with the rest of the business insolvency series in the posts linked at the bottom of this blog.

We conclude our look into business insolvency with part one of two blogs about Creditor’s Voluntary Liquidation (CVL). Part 2, the CVL Process will be published this coming Monday.

If the results of your Business Health Check aren’t very promising and you think that continuing to trade might be just too much for you to handle then CVL is something you might want to look into.

 What is a Creditor’s Voluntary Liquidation?

Creditor’s Voluntary Liquidation is referred to by a number of other names, CVL, voluntary liquidation, business bankruptcy or simply just liquidation.

Sometimes a company is overwhelmed by crippling debt, it is not able to trade out of cashflow problems and does not have enough money to pay its debts as and when they fall due. In these circumstances the company is insolvent and the only appropriate course of action is for the directors to cease trading and seek professional advice.

A voluntary liquidation is the most common way for directors and shareholders to deal voluntarily with their company’s overwhelming debts.

A voluntary liquidation would stop demands from company creditors and allow the company to write off 100% of its debts. It would also enable the directors to close the company as soon as possible.

If you have been experiencing pressure from creditors such as bailiff action or a winding up petition you can still put the company into Voluntary Liquidation. Once your insolvency practitioner has given notice to the company’s creditors, any bailiff action against the company assets is void and therefore they tend to put all action on hold pending the appointment of a Liquidator.

When might a CVL be appropriate over other forms of insolvency and turnaround advice?

With a voluntary liquidation the company will cease to trade, its assets are realised (sold) and employees dismissed.

Where it may be possible to trade out of the situation, or continue in business, other insolvency procedures such as company voluntary arrangement (CVA) need to be considered. It is for this reason that directors should contact a licensed insolvency practitioner who can guide them through the options.

Voluntary liquidation is most appropriate where:

• The company is insolvent (use these three quick tests to find out if your company may be insolvent)
• A CVA is not appropriate
• The company does not appear to be viable even if restructured
• The directors do not feel they have the finances or determination needed to rescue the company

Advantages of CVL

Voluntary liquidation can have a number of major advantages for directors and shareholders of a company that has overwhelming debt problems.

The main advantages are:

•  Allows you to step away from the insolvent company with no further liability (unless debts have been personally guaranteed)
• Write off 100% of what the company owes
• It shows creditors you have done the right thing by taking professional advice and can steer you away from the implications of wrongful trading
•  A very quick, cost-effective way of formally closing down a company and complying with your duties as a director
• Can be funded using company assets such as cash at bank, sale of assets, book debts etc.
• Employees and potentially directors can make a claim from the National Insurance Fund and receive payments for outstanding wages, holiday pay, pay in lieu of notice and redundancy
• Stop demands from creditors
• Provide peace of mind to the directors and enable a fresh start free from debt

Entering a voluntary liquidation means that your insolvency practitioner will become the point of contact for all your creditors, this means that you do not have to take any more harassing phone calls and any threatening letters can simply be forwarded on for them to deal with.

It is the liquidator’s (Insolvency Practitioner’s) duty to deal with all creditors and realise the company assets. The directors are removed from office and are free to make a fresh start.

What Next?

If you would like any help or advice with decisions on liquidation or any of the other insolvency and turnaround options we have covered in this series then remember that Focus Insolvency Group are here to offer you free and impartial guidance. Get in touch today.

On Monday we will bring you part 2 of our guide to CVL’s with a look at the process of liquidation. If you have any comments or feedback please let us know in the comments below or send us an email.

Related Blogs

Is My Company Insolvent?

Business Health Check

Turnaround Advice

About Company Voluntary Arrangements

CVA Process

Is Administration Right for your Company?

The CVL Process

Options Available to Struggling Limited Companies  – Round Up

Is Administration Right for your Company?

We continue our series of blogs about options available to insolvent limited companies this week by looking into Administration. If your business health check reveals that a solution to its financial difficulties may be required; then administration is another route that can be looked into. You can catch up with the series so far with, Is My Company Insolvent?, Business Health Check, Turnaround Advice; Company Voluntary Arrangements and the CVA Process.

 So, what is administration?

 The idea of administration is to act as an alternative to winding up the company so that where possible the company or at least its business can be rescued. If a company falls into financial difficulties the directors or a third-party will sometimes appoint an administrator to run the company. Administration is a key insolvency tool to implement the rescue and survival of the business and provides the company with immediate protection from its creditors. This is to determine whether the company can trade out of its problems or be sold on to enable the company to be turned around. If the company is not a viable concern then these assets will be sold and distributed to its creditors.

 There are three routes into administration

•  The company and its directors can file a notice at court

•  The holder of a qualifying floating charge can file a notice at court (such as those that have a debenture over company assets)

•  Or a court order can be made to place the company into administration.

 Before accepting an appointment an administrator must be satisfied that one of the following outcomes can be achieved.

  – Rescue – The company would still continue to exist in its original form and eventually be returned to the directors with some sort of debt restructuring or Company Voluntary Arrangement in place. The company must continue business as a trading viable concern.

  – Better result for creditors – This would allow for a better return to creditors than if the company were to be wound up. The main core of the business may be sold on and survive as a going concern with any unnecessary parts being stripped away and sold. This is the most usual outcome of administration.

  – To allow distribution to secured and preferential creditors – This allows for a better outcome for this class of creditor but other unsecured creditors would receive nothing. This may be a useful option if trading needs to continue for a limited period, for example to complete a contract. The business would not normally survive in this case but is the least likely occurrence out of the three outcomes.

 Advantages of Administration

•  Administration offers full legal protection from all creditors whilst a strategy is formulated in respect of the future of the company
•  Gives directors or third parties an opportunity to buy back the business as a going concern
•  Offers vital breathing space whilst a business recovery or restructuring package is implemented
•  An administrator can be appointed very easily merely by filing the necessary documentation in court.
•  Costs are taken from the available assets in the company

 The Administrator

 The administrator will be a licensed insolvency practitioner and has the power to trade, manage and sell the business as a going concern in order to maximise the return the creditors. They will take full control of the company finances, affairs, business and property while an outcome is negotiated and achieved.

 Administration Process

 Once an administrator is appointed he or she has 8 weeks to produce formal proposals to the outcome of the administration, copies of these would be sent to the Registrar of Companies and all know creditors. Within 10 weeks the administrator must hold a meeting of creditors at which the proposals will be agreed upon. Once these proposals are agreed the administrator must manage the company in accordance with them to achieve the agreed outcome of the administration.

 Administration will last for one year and will end automatically after this time. Creditors can agree an extension of 6 months but any longer than this must be with court consent.

 Pre-Pack Administration

 Pre-packaged administration is a lot like normal administration but; as the name suggests, the process is a lot faster. In pre-packaged administration, a company is placed into administration and the business is sold immediately or shortly after the appointment of the administrator. The insolvency practitioner (the administrator), the directors and/or other interested purchasers will have obtained valuations, agreed a sales price and drafted contracts to enable the business to be sold immediately after appointment. Again, costs are met from the assets available.

 Advantages of pre-packages administration

• Pre-pack administration can result in a quick and relatively smooth transfer of a business
• Pre-packs can protect the goodwill of the company as they have minimal impact on customer confidence that any insolvency proceedings inevitably cause.
• Pre-packs can save more jobs than in normal administration
• Because the process is relatively quick compared to a normal administration, the costs of the administration process may be reduced, which may result in a better return for creditors.

 What Next?

 If you think that administration could be the rescue option your company is looking for then give Focus Insolvency Group a call, we can talk you through the options available and go into more detail about your company’s specific circumstances. All our advice is free and impartial.

 We will conclude our series of Insolvency Options for Limited companies next week with a look at Company Voluntary Liquidation. If you have any questions or comments please leave them below or send us an email, we’d really like to have your feedback.

Related Blogs

Is My Company Insolvent?

Business Health Check

Turnaround Advice

About Company Voluntary Arrangements

CVA Process

About Creditor’s Voluntary Liquidation

The CVL Process

Options Available to Struggling Limited Companies  – Round Up

Image from freedigitalphotos.net

The CVA Process

We talked about Company Voluntary Arrangements in our last blog but how do they work from start to finish?

What is the process of a CVA?

• Stage 1: Advice and Decisions

An insolvency advisor will firstly help you to explore your options to make sure that CVA is definitely the right one for you and your company. They should discuss with you the company’s financial position, review the company’s viability, financial forecasts and background and explain various other insolvency procedures such as voluntary liquidation or Administration before proceeding with a CVA application.

All consultation advice should be free of charge!

• Stage 2: CVA proposal is drafted

After deciding that CVA is the very best solution for your company a Company Voluntary Arrangement proposal would be drafted. This will be done by the company directors with the aid of an Insolvency Practitioner. This proposal will then be sent to all the company’s creditors to outline the CVA and inform them of the creditors meeting.

• Stage 3: Creditors meeting

At the creditors meeting all the company’s creditors will be entitled to vote for or against the CVA proposal. To be approved the vote must pass by at least 75% in value terms; not votes.

That is to say that if a company had 4 creditors and it owed 75% of its debts to creditor number 1 and the rest of its debts were split between the other 3, but the 3 all voted against the proposal and creditor number one voted in favour, the CVA would still be approved as creditor number one is owed the controlling share of the debt in this vote.

An approved CVA legally binds all creditors to the arrangement whether they voted or not.

• Stage 4: During the CVA

The company will make a single monthly payment to the insolvency practitioner supervising their CVA based on what the company can afford after all income and outgoings are calculated. The amount of this monthly payment will also depend on the company’s original level of debt as well as what they have spare each month. The insolvency practitioner will distribute this monthly payment to the company’s creditors appropriately.

Fees will be agreed between the creditors of the company and the insolvency practitioner and these will usually be deducted from the monthly payments for the term of the CVA. It is not common practice to ask for fees up front.

You will have to agree that the company takes no further credit during the term of the CVA. The company should also agree to work in line with its predicted cashflow forecast and if there are any additional profits, these will be made available to creditors.

• Stage 5: Final Stage

The CVA should come to a successful conclusion on or before its fifth anniversary and any outstanding unsecured debt will be written off making the company legally free from debt.

What next?

If you think your company might qualify for a CVA or you’d like some advice on this or any other options then remember that Focus Insolvency Group are here to offer free and impartial advice. Every situation is different and so it’s best to seek advice before making any decisions, you can get full and in-depth advice that best matches your circumstances and those of your business.

If you have any comments or questions please leave them in the comments sections below and we’ll endeavour to answer them as soon as possible or just give us a call.

Next time we’ll be looking into Administration.

Related Blogs

Is My Company Insolvent?

Business Health Check

Turnaround Advice

About Company Voluntary Arrangements

Is Administration Right for your Company?

About Creditor’s Voluntary Liquidation

The CVL Process

Options Available to Struggling Limited Companies  – Round Up

image from freedigitalphotos.net

About Company Voluntary Arrangements

Last week we began looking at the various options for limited companies who might be feeling financial pressure. You can recap these blogs here, ‘Business Health Check’ and ‘Turnaround Advice’.

But what if your business health check discovers that your company might require a formal insolvency procedure? You can get an overview of which procedure might suit your company best in our upcoming blog, ‘What is the best option for my company?’ so look out for that. One of the options that might be available to you is a Company Voluntary Arrangement or CVA.

But what is a CVA?

Well simply put it is a rescue tool, an insolvency procedure that allows a financially distressed company to reach an agreement with its creditors about paying off all or part of its debts over an agreed period of time.

It is based on the principle or preserving the company and enabling it to continue trading so that it can rebuild turnover and profit, paying back what it can afford over the agreed period, (This is usually 5 years but more on that later).

The directors will remain in control of the company giving it the greatest possible chance of survival. A CVA can be used as an excellent and effective tool to solve a company’s debts and once the arrangement has been completed, any outstanding debt not paid will be written off. All costs of a CVA are more often than not met from the contributions made to creditors each month meaning that there is no extra financial burden made on the company.

When might a CVA be appropriate over other forms of turnaround and formal insolvency?

First and foremost a company must be considered insolvent or already be in administration to be eligible to enter into a Company Voluntary Arrangement. To see if your company may be considered insolvent take a look at our blog post ‘Is My Company Insolvent?’.

Where it may be possible for a company to trade its way out of debt, or continue in business if its debts can be reduced, then a CVA is probably something that you will want to consider.

A CVA may be appropriate where:

• A company wants to avoid liquidation
• A company that knows it can be successful and profitable in the future but needs a bit of time
• A company needs to restructure
• A profitable company that has experienced late payers or bad debts which have affected the short-term cashflow of the company
• A company has tried to negotiate new terms with their creditors themselves but have failed to reach a compromise
• Creditor pressure is preventing the company from moving forward

What are the main advantages of a Company Voluntary Arrangement?

CVA’s can have a number of benefits and advantages for directors and shareholders of companies facing overwhelming debt problems.

• It will stop pressure from creditors, including HM revenue & Customs
• It will quickly improve company cashflow
• There is only one monthly payment to make that the company can afford
• Unsecured debt that the company cannot afford to pay will be written off
• All interest charges on unsecured debts are frozen
• CVA’s are not advertised locally or in the London Gazette
• Directors and shareholders will retain supervised control of the company
• Company creditors are legally bound by the terms of the CVA
• Your company will be protected from any further court or bailiff action
• Lower costs that those seen in Administration and Compulsory Liquidation

When you enter into a CVA with an Insolvency Practitioner they will become your point of contact for the company’s creditors, you would not have to deal with any more harassing phone calls or threatening letters, your insolvency practitioner will sort those out for you.

What next?

Read our next blog on the CVA Process.

If you think your company might qualify for a CVA or you’d like some advice on this or any other options then remember that Focus Insolvency Group are here to offer free and impartial advice. Every situation is different and so it’s best to seek advice before making any decisions, you can get full and in-depth advice that best matches your circumstances and those of your business.

If you have any comments or questions please leave them in the comments sections below and we’ll endeavour to answer them as soon as possible or just give us a call.

Related Blogs

Is My Company Insolvent?

Business Health Check

Turnaround Advice

The CVA Process

Is Administration Right for your Company?

About Creditor’s Voluntary Liquidation

The CVL Process

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