Often the core business is viable but companies experience cash flow difficulties and are burdened by historic debt for any number of reasons. A Company Voluntary Arrangement is an ideal tool to assist with these scenarios.
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 but is protected from creditors taking any formal action in respect of its historic debts.
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.
The formal structure of a Voluntary Arrangement offers creditors more security and comfort than informal negotiations and therefore is likely to encourage their support and provide a more successful strategy.
Contact us now to discuss whether a Voluntary Arrangement may be appropriate for your business.
‘I didn’t think we had any chance of getting creditors to agree and didn’t even know this was an option but Sonia worked tirelessly to help us and this has given us a real chance at survival.’
