Why a Company Voluntary Arrangement might be your best defence against creditors
Waterloo, Cold Harbor, Belleau Wood, D-Day and Midway were all fought in this month and businesses would be sensible to prepare to defend themselves on multiple fronts by the end of it.
Temporary restrictions on the issuing of winding up petitions and statutory demands are due to be lifted on Wednesday 30th June.
The last day is also the second “Quarter Day” of the year when many commercial tenants rents are due, making it the last rent day which is covered by another temporary ban, this one on the eviction of commercial tenants by their landlords, which is also due to lapse that day meaning that bailiffs will be able to start making calls and visits to delinquent businesses.
Many companies will have built up debts over the pandemic and lockdown periods for understandable and necessary reasons.
They may also have taken out bounce back loans or CBILS loans to make sure they could meet essential outgoings and the repayments on these agreements will also be beginning, in the latter case, at higher interest rates than the 2.5% fixed rate of the bounce back loan.
A spokesperson for R3, the trade body for the Insolvency and business recovery sector, said: “A little cooperation (between creditors and companies) will go a long way towards securing longer-term repayments.
“Aggressive actions to recover debt, while shortly to be allowed once more, would go against the spirit of everything that the Government has done to keep many businesses afloat, and to protect the jobs that they support.
“We would hope creditors will realise that compromise and reasonableness are a better route forward. After coming through so much, it would be a terrible waste to see firms unnecessarily falling by the wayside.
“Many commercial landlords have taken a pragmatic view of their tenants’ positions by recognising the unique situation that was evolving, and agreeing to defer – although crucially not cancel – rent payments.
“However, these landlords have still had their own responsibilities to meet over the last year and a half, including mortgages, insurances, maintenance costs and utility bills, and they will be understandably eager to recover the money they’re owed.
“If a debtor fails to repay then creditors are perfectly within their rights to take enforcement actions, even if difficult trading conditions means that there’s no way they can repay along pre-pandemic timelines.
“The clear concern now is that too swift a return to these businesses having to meet their full cost liabilities in an economy that’s not yet fully functional will be enough to push many of them under.”
Business Rescue Expert Insolvency Director Chris Horner agrees and said: “Some landlords and creditors will be itching to begin recovery action the moment they’re allowed to, so it would be prudent and sensible for businesses to reach out and have conversations with them right now, if they haven’t already begun to communicate.
“While some might insist on trying to enforce unrealistic agreements based on pre-Covid calculations, the majority may well be amenable to making sensible changes to arrangements.”
There are several options a company can pursue if creditors demand their due before June 30th and are intent on following through on their threats.
A smart business owner could employ an insolvency moratorium before then which would halt any subsequent creditor or recovery actions for a further 20 working days while the company explores what options are available to it.
One of these options for otherwise viable businesses that has built up a high debt burden over the past 18 months is a company voluntary arrangement or CVA.
To continue with the military metaphors for a moment, placing your business into a CVA is the equivalent of strategically withdrawing into a heavily defended and impregnable fortress.
Amongst other advantages, a CVA halts all winding up petitions issued against a business and any impending bailiff visits straight away.
An agreement with creditors is negotiated to cancel a proportion of outstanding debts, which could include bounce back loans or CBILS loans, in exchange for regular monthly payments, usually over 60 months, to clear the remaining balances.
After this, the business can emerge from behind these defences, debt free, and ready to re-engage on far more favourable terms.
June 30th might seem a long way off but It’s less than three weeks.
This might be the day that your creditors have been marking down on their calendar for months so don’t assume that their better nature will automatically kick in as the day itself dawns.
R3 rightly points out that aggressive recovery action may go against the spirit of the times but while the letter of the law enjoys legal standing, the spirit has no such protections.
Relying on the better angels of people’s nature is not a strategy we’d ever advise but if you arrange a free initial consultation with us at your most convenient time, we’ll happily let you know what we would recommend in your situation.
We will explore all available options with you, including several you might not have considered, and work with you to implement the most efficient and effective strategy to make sure your company can make the rest of 2021 memorable for the right reasons.