When you’ve spent a long time trying to solve a problem without being able to make any headway to a solution or if you’ve spent a day arguing with someone and neither of you have conceded an inch then taking a break is a good way of resetting.
How many times have you been able to make elusive progress after sleeping on a puzzle or problem and coming back fresh with a clear head?
It’s the same with companies.
Some of them could be perfectly sound businesses with scope for growth and expansion but due to one or two temporary negative circumstances they are struggling or even insolvent.
This is where voluntary administration can help a business catch its breath, refocus and reemerge with greater energy and clarity to pay its creditors and return to profit and a brighter future.
Yes, an insolvent company could be wound-up, closed and sold off but the process is time-consuming, complicated and with no guarantees that creditors would be repaid. A functioning business out of voluntary administration is often a better bet for profits.
Initiating a voluntary administration is straightforward. A simple majority of directors can pass a resolution and it can be completed and implemented in under four weeks.
Once enacted by a professional insolvency practitioner, a moratorium is granted stopping creditors from taking recovery action against the company or personal guarantees being reinforced against the directors.
This gives an otherwise financially sound company, time to trade its way out of its current difficulties or reduce debts and costs and rebuild sales and profits.
A voluntary administrator is appointed by the directors (although they can also be appointed by other parties with standing such as a liquidator or secured creditor) to oversee the process.
Voluntary administrator is just their title - they’re an insolvency professional but they aren’t doing it for free!
The administrator will take over the company to review it from top to bottom and decide on the best way forward through a rescue plan.
This could involve coming to an arrangement with your creditors to settle your existing debts called a Company Voluntary Arrangement (CVA).
Alternatively they could look to market the business to new potential buyers through appropriate channels as a going concern which could attract new ideas, energy and investment into the company.
If a CVA can’t be agreed or If the business is unable to be sold in this way then various stock, assets or other parts of the business could be sold to help maintain the main body of the company.
Alternatively, the business could be purchased by existing directors or qualified third parties as part of a pre-pack administration deal. This process is usually quicker and more efficient as the sale is concluded at the same time as the administrators are appointed.
Voluntary administration is also different from voluntary liquidation (CVL). This is where the directors seek to close down the company at their earliest convenience.
Getting a voluntary administration underway is relatively easy.
Speak to us first and arrange a free initial consultation with one of our expert rescue and restructure advisers.
They will be able to find out more about your immediate situation, talk you through all the necessary steps, what forms to submit and to whom, and the approximate timescales and costs you’ll be looking at.
They’ll also run through any likely changes to the day-to-day running of the business that an administrator will enforce and what their responsibilities will continue to be.
So if your business needs a time out, get in touch with us and we’ll help stop the clock while we plan your next play - together.
As mentioned earlier, this article will outline the procedure for the arrangement and when it is considered appropriate.
A business partnership is similar to a sole trader. The very definition of a partnership is two more individuals running a business together to make a profit. If there is a partnership agreement, this will define the role of each partner, their obligations and their stake in the partnership. There are advantages and disadvantages of a partnership when compared to a limited company. The main business partnership advantages are:
The main disadvantage is that if the business partnership was to enter financial struggles, you and the partner are jointly and severally liable for the entire business debt. Should one of the partners fail to contribute or becomes insolvent, the liability of the debt falls to the other partners. This will even apply to partners who have retired or if there is a fallout between partners. A clean break is not as easy with a partnership as with a limited company.
If the company does suffer major cash flow issues, a partnership voluntary arrangement may be a suitable option. This will allow you to work together to a repay a large proportion of the monies owed to your creditors.
Similar to a company voluntary arrangement (CVA), the partnership voluntary arrangement is designed to provide the creditors with a higher return on the debts. The PVA also offers the opportunity to restructure the business model in an attempt to return to profitability. You and your partner will come to an arrangement to repay a certain amount each month, over a set period of time.
The PVA procedure will be overseen by a licensed insolvency practitioner (IP) who will outline affordable monthly repayments and distribute the amounts. The arrangement must be accepted by 75% of the creditors voting on the proposals. However, it will bind all creditors pre-dating the arrangement. PVAs, generally, last for around three to five years with creditors accepting the amounts paid under the partnership voluntary arrangement in full and final settlement.
It’s also important to note that the partners must be dedicated to making a success of the business and can make the realistic monthly repayments. Partners may even be required to undertake individual voluntary arrangements (IVA) alongside the PVA to safeguard the business and protect from personal bankruptcy petitions. More information on individual voluntary arrangements can be found here.
A partnership voluntary arrangement should only be considered where changes have been made from historic trading to make the business viable. This may mean cutting costs and making redundancies to ensure a monthly payment can be offered to creditors. If assets are to be sold as part of the arrangement, the PVA can also offer the time to sell these company assets at a better value than that of bankruptcy.
If you do decide that a PVA is the most appropriate route for your business, you should start by listing all of your creditors and their debts. One of the many business partnership advantages is that you do not have to do this on your own, but together with your partner to list the company liabilities and assets. It’s important that you do not exclude any liabilities and attempt to put realistic values on both them and the assets. From there, you can decide whether the company can prove profitable with these current overheads by preparing cash flow forecasts. Alternatively, if you are in need of a complete business restructure.
You must outline a proposal as part of the partnership voluntary arrangement, detailing the reasons the business has failed and the current financial issues. The PVA proposal will also include extensive detail on the structure of the procedure, the amount and how the creditors will be repaid.
For the creditors to decide whether to agree to the arrangement, the proposal should also contain a statement of affairs. The statement, essentially, sheds light on your financial situation and the outcome should the arrangement be approved. The document will also state how long the arrangement will last.
Of course, the primary aim of all businesses is to ensure profitability. However, if your company does fall into cash flow problems, there are many business partnership advantages to a PVA over compulsory liquidation.
Similar to a company voluntary arrangement, the PVA allows partners to retain control of their business and continue to trade. The primary aim of this procedure is to breathe new life into the company and return the business back to profitability. However, if you do allow the debts to build up, it’s highly likely the creditors will submit a winding up petition to close the business.
While there are other business partnership advantages to consider before entering a PVA, it’s worth noting that this process prevents the creditors from taking any further legal action against your partnership. You and your partner are afforded the necessary breathing space to deal with the debts and, hopefully, transform the business.
The business partnership agreement for the PVA also works in the best interest of the creditors, providing them with higher returns than that of winding up the partnership. However, it is important that you deal with these debts early on and seek critical insolvency advice to avoid compulsory insolvency.
We do recommend you seek immediate insolvency advice if you spot the early signs of financial trouble. Our business rescue experts will look to find the best solution to help your business return to profitability.