An informal arrangement is a name for any non-insolvency arrangement or agreement you make concerning your debts with some or all of your creditors. Informal arrangements can be attractive because they will cost you considerably less in fees to put in place. However, as it’s not a formal insolvency process, it is not legally binding on your creditors. This can mean it’s not always a suitable option. We talk through informal arrangements in more detail here.
Because of their nature, informal arrangements don’t normally last more than 24 months. Therefore, they generally suit businesses that have short term cashflow issues, and a relatively small number of creditors.
Unlike voluntary arrangements, during an informal arrangement interest and charges are not stopped unless by agreement with individual creditors. So, for example, although HMRC might be willing to consider an informal arrangement, it will not stop applying interest to your debt, so the debt and interest will need to be repaid.
Firstly planning and preparation. You’ll need to prepare a comprehensive cashflow, and a profit & loss forecast. Be cautious on your sales projections, and leave plenty of room to maneuver in your expenditure. Your projections must show that you will be able to continue to trade profitably, paying future tax liabilities on time.
From your forecast, work out what you can realistically afford to put aside for historical creditors each month. Bear in mind that this doesn’t have to be a flat amount, but should represent the expected cash available on a monthly basis. For example, a garden centre would expect to offer more on a monthly basis in the summer months than the winter. This amount should be divided equally (pro rata) amongst your creditors.
Next, prepare a report to send to your creditors. You should outline your predicament, with reasons for the issues, and reasons why the business should survive. Include your financial projections, and demonstrate how much money you intend to repay them each month.
If your offer of repayment is contingent on a third party event such as funding, or an asset sale, show proof of this in the report.
Don’t over promise! Creditors will respect you more if you give them realistic timescales and reasonable explanations. If you can’t deliver on your promises, they are unlikely to give you another chance.
Creditors want to be kept in the loop, so once you’ve made the decision to keep trading you need to be as communicative with them as possible.
If you feel that you are not compromised by your creditor relationships, and your business can afford to allow you to spend the time, then absolutely, yes.
One piece of advice we would offer is this: sometimes we find that owner / managers are more likely to make separate deals with each creditor, normally adding up to an unaffordable monthly amount, and quickly leading to the arrangement failing. Be sure to be realistic about what you can afford.
We can certainly help. Many businesses prefer to deal with us as a third party in these situations because:
Our fees to set up an informal arrangement range from £1,950 to £3,950 plus VAT. Depending on circumstances, this may be payable over 3 months. There is also a fee to manage the arrangement on a monthly basis, which ranges from £95 to £195.
If you have any questions, or you’d like some help with this, don’t hesitate to contact one of our business rescue experts directly.