Company Voluntary Arrangement
If a company is struggling with debt, a Company Voluntary Arrangement (CVA) is an advisable route to take; particularly if the directors are hoping to keep the business trading, rather than winding it down. A CVA is a legal arrangement between the company and its creditors that allows a company to pay off its debts over a fixed period of time. When deciding upon a CVA, the company will need to appoint an insolvency practitioner to oversee the complex process and ensure that the debts are repaid within the agreed timeframe.
The key appeal of a CVA to a business in distress is that it allows the company to continue trading while repaying its debts. This means that the business can continue to generate revenue, maintain its relationships with suppliers and customers, and pay its employees whilst repaying its creditors. If the process is successful, it can provide a lifeline for a struggling company and enable it to return to profitability, avoiding further financial or legal issues. Therefore, a CVA is a recommended option for a company that has a viable business model and the potential to return to its former success, but is struggling with cash flow issues.
Administration
If a company is in excessive financial difficulty and is unable to pay its debts, then undergoing administration is often the best route to take. Administration is a formal insolvency process that sees an insolvency practitioner take control of the company to assess its viability. During this process, the company’s creditors cannot take legal action against the company without the permission of the courts, giving the company breathing space to reassess its financial situation and prepare to implement the insolvency practitioners’ strategy.
After this process, the insolvency practitioner will then develop a strategy for the company, which may include restructuring the business, selling off assets, or negotiating with creditors. The aim of this process is to achieve the best possible outcome for everyone involved and, if successful, the process can provide a lifeline for a struggling company and enable it to return to profitability. Failing this, an active administration aims to achieve a better result for creditors than would be possible through liquidation.
Liquidation
If a company is unable to pay its debts, liquidation may be the only option. Liquidation is a formal insolvency process that involves the winding up of the company's affairs, as well as selling off any remaining company assets and distributing the proceeds to creditors. At the end of the process, the company will cease trading, and there is no opportunity to return to profitability when opting for liquidation.
There are two types of liquidation: compulsory liquidation and voluntary liquidation. Compulsory liquidation is ordered by the court, while voluntary liquidation is initiated by the company's directors. In both cases, an insolvency practitioner is appointed to oversee the process and provide a clear and final resolution to the company's financial difficulties.
If you are considering liquidation, it is important to seek professional advice before proceeding. An insolvency practitioner can help you to understand the process and develop a strategy for dealing with your company's debts, as well as advising whether liquidation is the best option for your company, or whether another route could offer a turnaround.
Business Insolvency Solutions
When dealing with a business in distress, it is important to act quickly and decisively. There are several options available to your business, and with the right support and guidance, it is possible to save your business, or wind it down with a minimum of stress and legal difficulties.
At BEACON, we are here to assess your company's financial situation and provide you with advice on the best course of action. To learn more about our business insolvency solutions, or to begin discussing your options with a free, no-obligation consultation, please contact us today.