Company Rescue
Administration
If your company is facing claims and legal actions from creditors which it is unable to pay then the process of Administration may be suitable to help the business restructure and survive.
It is important to understand that the Administration process will involve placing control of the company into the hands of a licensed insolvency practitioner. Due to the costs and complexity of this process, it is likely to be useful for only a relatively small number of insolvent companies which have an underlying viable business and assets.
Pre-pack Administration
This process is typically used to arrange for the sale of an insolvent company’s business or its assets to a buyer. The buyer may be unconnected to the company or may be connected to the company as e.g. a shareholder or a director of the company.
The sale of the business or its assets is negotiated and agreed with the assistance and oversight of an Insolvency Practitioner. The Insolvency Practitioner is only appointed as the company’s Administrator as the same time as the sale is completed. The company is usually formally liquidated a short time afterwards.
A pre-pack Administration can help rescue the parts of a company’s business which are viable and enable the business to continue in a new company without being burdened by unmanageable debts. This can not only help ensure the survival of the company’s business but may also mean that the jobs of many of the company’s employees can be saved.
It is important that action is taken as soon as a company’s business is at risk of being unable to continue due to creditor pressure so that the company’s directors can achieve the best value for the sale of the viable parts of the company’s business.
A Pre-pack Administration can be a powerful tool to be used to save a company’s business in the right circumstances.
Company Voluntary Arrangement (CVA)
A Company Voluntary Arrangement often known as a CVA is a formal legally binding agreement supervised by a Licensed Insolvency Practitioner.
The terms of a CVA will typically provide for the company to continue trading and to repay some of its debts over a period of time usually between 3 and 5 years. The CVA will offer creditors the prospect of receiving a better outcome than they could expect to receive if the company ceased trading and entered into liquidation. The shareholders of the company can also benefit from a CVA as the CVA will be proposed on the basis that it will ensure the future survival of the company.
For a CVA to be approved it is necessary to obtain the support of 75% in value of creditors who vote on the proposal. This means that the proposal must provide the company’s creditors with confidence that the Company’s trading forecasts are realistic and the proposal is genuinely aimed at providing the Company’s creditors with the best outcome which is possible in the circumstances.
A CVA will only be a viable option for a Company if the Company is able to demonstrate to its creditors’ satisfaction that the Company is able to trade profitably and repay some of its debts in addition to paying its day-to-day expenses. The creditors of the Company will need to have confidence that the Company’s directors will comply with the terms of the CVA as the directors will continue to manage the business of the company once the CVA has been approved.
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Client Story
The company began trading in July 2010. The business manufactured and supplied beauty products to salons.The business suffered a significant decline in sales in 2021 due to the industry experiencing fluctuating restrictions to manage the impact of the Covid pandemic. After funding a marketing campaign that was unsuccessful at the end of 2022, the liabilities and ongoing operating costs of the business became unaffordable. The directors sought help from The Business Debt Advisor. A sale of the business and its assets was successfully completed in the Liquidation which has resulted in maximising realisations for the creditors of the company. The directors were able to demonstrate that by ceasing trading and taking steps to liquidate the company they had achieved the best outcome possible for the company’s creditors in the circumstances