If your company is in the position of not being able to pay its debts, do not wait until a third party takes hostile action against you. There are steps you can take that may help to get the company into a solvent position again. The sooner you take these steps, the greater chance that the company can be saved.
Financial difficulties have hit some of the strongest names on the High Street. The reasons a business starts to fail are not always the obvious reasons such over extending financially. There two factors that are often complicit in business failure, that is failing to listen to your customers and not noticing the changing demands of the market and adapt. Also, not monitoring your rivals and not recognising the customer-friendly changes they are implementing.
One of the most advantageous ways of battling through the possibility of the company going into insolvent liquidation is embarking on a company voluntary arrangement (CVA). This is a procedure that is unlike any other insolvency process and it can, if carefully managed, restore a company to solvency. Any company struggling to pay its debts that subsequently fails, very often provokes a domino effect in the creditors, therefore it is in all parties' best interests to make every effort to save a business and safeguard it's trading future.
Olu Ajasa, a Partner, commented "A CVA is a procedure introduced by the Insolvency Act 1986 Part I, the likelihood of acceptance and its success depends on ruthless honestly related to the financial position of the business in the proposal put before the creditors for approval. They will scrutinise the proposal and decide whether or not to accept on the basis of its viability." Olu further pointed out "the proposal must be able to demonstrate to the creditors that a CVA will offer a better return than liquidation. CVAs also can be less costly than other insolvency procedures like liquidation"
The significant benefits of a CVA are:
- if accepted it gives the company the opportunity to carry on trading bringing in income some of which is distributed by the supervisor of the CVA to pay of the company's debts.
- It allows time to restructure and reorganise the business.
- All debts are frozen with no interest chargeable.
- No enforcement action can be taken by the creditors bound by the CVA to recover and debts owed during the period of the CVA.
- The procedure is private which reduces reputational damage.
- It is a legally binding agreement.
A CVA is effectively a moratorium that prevents creditors from taking enforcement actions and gives the company breathing space to reorganise and implement the agreed repayment plan.
The process is overseen by an insolvency practitioner who initially acts a nominee and thereafter supervisor of the CVA. The proposal is drafted detailing the terms of the arrangement, including how much will be repaid and over what period and put before the creditors. A meeting is convened where creditors vote on the proposal. For the CVA to be approved, at least 75% of the creditors must vote to accept it and 50% of unconnected creditors must support it, for the CVA to go ahead.
If accepted, it provides a manageable framework for the repayment of debt and the collaborative approach involving the creditors makes if far more probable that the company can return to being a profitable business. Throughout the CVA period, the company's financial performance is regularly monitored. The insolvency practitioner provides ongoing updates to ensure compliance with the terms of the arrangement. Regular reports are submitted to creditors, keeping them informed of the company's progress.
Employees must be informed of the company's position, particularly as frequently a restructure often includes a redundancy programme to reduce the outgoings of the business. Frequently a CVA is viewed positively by stakeholders as It demonstrates the company's commitment to overcoming difficulties and striving for long-term viability. This can strengthen the business relationship providing suppliers with confidence that the business will honour its commitments and not behave recklessly.
The insolvency team at Giambrone & Partners has guided businesses through insolvency and supported and advised on attempted restructures. Financial difficulties can overtake a business very swiftly, particularly in challenging economic times when all businesses must be fast on their feet to stay ahead and achieve sustainable business continuity. It often does not take too long for a sleeker more efficient business model to have the desired effect of changing a company from struggling to successful.
Olu Ajasa has extensive experience and expertise in all types of alternative dispute resolution for commercial issues, as well as commercial litigation. Olu advises on complex, high-value, domestic and multi-jurisdiction matters.
Olu assists clients in complex cross-border commercial disputes, shareholder disputes, partnership disputes, contractual disputes, loan facility agreements, secured lending, both corporate and insolvency relating to individuals. Olu has expertise in resolving real estate disputes (commercial and residential) and landlord and tenant law (commercial and residential).
He also has considerable experience in corporate and personal insolvency matters, including preparing and responding to statutory demands, winding-up petitions, investigating company directors and also assists with all aspects of corporate insolvency litigation.
Olu is highly regarded by his clients for his resoluteness in satisfactorily concluding complex disputes swiftly and in line with their commercial objectives.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.