Business Rescue

What is a CVA?

“I know I have a strong business with great profit projected, but I just can’t seem to get away from my tax arrears and creditor debts built up when the company ran through a bad patch”

A Company Voluntary Arrangement (CVA) is a legally binding agreement between your company and your creditors for you to repay what proportion of your debt you can afford, normally over a five year period. The balance of any unsecured debt is written off at the end of the CVA.

A CVA can be implemented in 3 simple steps.

Step 1 Your company instructs Robson Scott to assist in preparing proposals and other documentation to enter into a CVA.

Step 2 Together, we assess the company’s assets, prepare a statement of affairs, a business plan and cash forecasts. Once finalised, we put all of this into a proposal and send the proposal to your creditors to be voted on at a creditors’ meeting.

Step 3 Robson Scott hold the creditors meeting and discuss any issues the creditors have with the proposals. The creditors vote, and subject to their approval or amendments, the CVA is accepted.

Once accepted, you remain in control of your business, and we monitor to ensure that the terms of your proposal are adhered to.

Some of the benefits of a CVA are:

  • It decreases pressure on cashflow
  • Once accepted, it prevents legal action from continuing
  • It provides an on-going dialogue with your creditors, and from this, hopefully better relationships than if you were to shut down and re-start
  • Unlike Liquidations and Administrations, CVAs are not advertised
  • Directors and shareholders positions remain unaffected
  • Finance agreements, lease agreements, and employee claims can be terminated and put into the CVA creditor pot
  • Tax pressure is relieved
  • Creditors hopefully get a better deal out of this as well!!

Some negative aspects of a CVA are:

  • It requires the support of over 75% in value of those creditors that vote at the creditors meeting, to vote in favour of it
  • You may be paying back substantially more than if you liquidated the company, or put it into administration
  • It can be difficult to keep up payments into the CVA for a 5 year period
  • If the CVA fails, your company may end up in liquidation or administration

If this sounds of interest, please email ewall@robsonscott.co.uk or freephone 0191 303 7170

What is a Pre-pack administration?

“My level of tax debt and trade creditors is too high to trade on, but I don’t want to lose the business entirely. I know that with a few changes, I could make the business work”

Pre-pack administration is a legal mechanism designed to allow a transfer of the assets of a ‘bad company’ into a ‘new company’ (newco).

Its fundamental purpose is to ensure the continuation of the business, and if done correctly should allow staff to retain their jobs, and their contractual employment rights.

Its benefits are that it allows a continuation of the business, whilst leaving the historic debts within the old company. The newco must pay fair open market value for the assets including goodwill, and the Administrator must be satisfied that the asset sale was at the best possible price.

Although pre-pack administration is a simple principle, the process itself must be carried out in a very specific way that requires planning, third party valuations, and an insolvency practice to oversee the project. As well as being bound by Insolvency legislation, the insolvency practice must also adhere to Statement of Insolvency Practice 16 (SIP 16), which details how the business should be marketed and sold.

In basic terms, a Pre-pack can be implemented in 5 steps.

Step 1 Your company instructs Robson Scott to assist in placing the company into administration, who carry out a review of the company’s financial affairs.

Step 2 Third party agents are instructed to value the company’s assets and goodwill, which is then marketed for sale.

Step 3 You set up a newco which makes an offer to purchase the assets and goodwill at open market value.

Step 4 The agents review the offers received and presuming yours is the highest (most small to medium sized companies have greatly reduced value outside of their existing management team), the offer is accepted.

Step 5 The company enters into administration, and the Administrator completes the sale of the assets and goodwill to newco.

From Step 1 to Step 5 the total process can be carried out in as little as 10 days, or as long as 5 weeks, depending on the requirements of the case.

Some of the benefits of a Pre-pack administration are:

  • It stops legal actions against the company
  • The company owners are involved in the process right up to administration
  • It allows for continuity of business
  • Historic debt is written off, with the exception of personal guarantees
  • Finance agreements, lease agreements, and employee claims can be terminated
  • Tax pressure is removed
  • If the proper process to do so is followed, the newco can use a similar name to the old co
  • It is a relatively quick process as compared to a 5 year CVA
  • Creditors hopefully get a better deal out of this as well!!

Some negative aspects of a Pre-pack are:

  • The newco is likely to be liable for all employees’ continuing contractual rights under the Tranfer of Undertaking (Protection of Employment) – also known as TUPE
  • If you haven’t re-organised the management within the newco, or dealt with the historic problems, then its unlikely that the new business will do well either
  • The administrator is required to prepare a report on the conduct of the former director and officers of the company

If this sounds of interest, please email ewall@robsonscott.co.uk or freephone 0191 303 7170

Agreeing the plan

The first stage in any potential business rescue is to make contact with Robson Scott for us to review all of your businesses financial records. Once we have undertaken this review, together we will formulate a plan. Although its called a business rescue plan, we will cover all aspects concerned… We will look at whether you have any personal guarantees, and formulate a way of dealing with these. We will consider your actions prior to liquidation and give you an honest appraisal as to how that might affect you personally. If we think you may require more advice on this, we will recommend specialists firms who may help. We will consider your employees, and the effect on them. If necessary, we will guide your employees through any redundancy process. We will consider your personal circumstances – do you want to retire, or maybe you require some management assistance from outside your business? We will put you in contact with various alternative funders who can assist with providing capital. And we will consider whatever other issues, you or us consider relevant to the overall plan. The best thing about getting to this stage is that its FREE. We don’t look to start charging until we have agreed on the plan forward!

Implementing the plan

We agree terms and our charging structure with you at this point, and then work together to implement the plan. This might involve contacting your creditors to make temporary arrangements, through to a Company Voluntary Arrangement (CVA); Pre-Pack Administration; Liquidation; Informal Arrangement; Individual Voluntary Arrangement, or even a Solvent Liquidation (sometimes referred to as a Members’ Voluntary Arrangement). Where we are unable to offer a service but it is still an integral part of the plan, we will introduce you to a partner firm specialising in that area. To get the best feel for how we set up and implement these processes, please read ‘What our Clients Say’.

To see how business rescue could work for you, at the top of the page, open up our ‘What is a CVA?’, and ‘What is a Pre-pack Administration’ sections.

Other Topics

Business ShutdownCreditor Help | Directors’ Help | Tax Problems