Advantages of a company voluntary arrangement
Paying off debts to creditors over a fixed period of time is a method often used by financially struggling companies to reduce distress, and that is exactly what a company voluntary arrangement allows you to do.
Along with this, there are also opportunities for the necessary personnel at the company to address issues concerning management as well as any failing operational systems. Does this sound helpful? Well there are drawbacks to this particular agreement, but here we’ll be focusing on the advantages of a company voluntary arrangement.
When you consider the costs involved with insolvency procedures such as receivership, liquidation and pre-pack administrations where a cash sum is required to purchase business assets, the set up of a company voluntary arrangement costs significantly less and can improve cash flow.
This is because even though an upfront payment is required for an initial creditors’ meeting, continuous costs are deducted from the monthly repayments that have been agreed by the directors and creditors.
What’s more, creditors will vote on whether to accept the terms of the arrangement and, once these have been accepted, the creditors are prevented from taking any form of legal action against the company providing that the agreed terms are being adhered to.
This means no constant demands for debt payments from multiple creditors and a much more manageable overall debt as interest and charges are both usually frozen.
It is often hugely detrimental to the reputation and future prospects of a company if word that the business is struggling financially makes its way into the public domain.
Fortunately, a Company Voluntary Arrangement is seen as a private procedure between the company and its creditors, meaning that there is absolutely no requirement for a business to inform their customers of this.
Maintaining director control
No one knows a business better than its directors, so ensuring that these individuals remain in full control, along with professional guidance, gives a struggling company the best chance of navigating a successful turnaround.
A Company Voluntary Arrangement doesn’t stress the need for a change in operation and also avoids liquidation, meaning directors are free of any sort of conduct or wrongful trading investigation to allow them to purely focus on assisting their business.
Stayed legal action
Loosely following on from the first point outlined here, when a Company Voluntary Arrangement has been agreed by creditors all legal action is stayed or temporarily suspended.
This means that any orders such as winding-up petitions cannot be undertaken and Validation Orders can be obtained to reopen previously frozen bank accounts resulting from a winding-up petition, allowing a return to normal trading.
If you believe your business may benefit from a Company Voluntary Arrangement, get in touch with Financial Saviour today. We are a team of experienced insolvency practitioners who specialise in corporate turnaround and financial restructuring.
Please note, if you are a sole trader or are self-employed and in this situation, an Individual Voluntary Arrangement is designed for you.