Administration and Company Voluntary Arrangements (CVAs)

Options that keep your company trading despite insolvency

Company Voluntary Arrangement (CVA)

A CVA is an agreement between the company and the creditors whereby the debts are “frozen” and the company agrees that if it is allowed to continue to trade it will make regular contributions towards the debt for a limited period of time. This keeps the company going and allows creditors to keep their customer. However, such agreements need the goodwill of the parties involved to make them work.

A CVA must be put forward an supervised by a qualified Insolvency practitioner. We’ll manage the full process, from planning the proposal to working with creditors and monitoring the arrangement.

A CVA will often be preceded by an administration.

Administration

If your company needs protection from creditor action while you work on a recovery or sale plan, administration may be the right choice. It puts the business under the control of an appointed administrator while steps are taken to save the company or get the best result for creditors. We’ll advise you throughout and help manage the process.

It may be that the current management is able to put together an offer to buy back all or part of the business without keeping responsibility for historic debt. This is known as a pre-pack sale. There is significant regulation around the process and directors should take advice early to avoid criticism further down the line. Seeking to transfer your business to another business to avoid debt can leave you at risk of personal liability.

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Frequently Asked Questions

An interim order is a Court order that precludes other legal proceedings whilst the order is in force.

Administration is one of a number of formal English insolvency procedures.

Administration stops any legal action or process against a company from proceeding, unless the Administrators or the English Court give permission. This means that creditors can’t take legal action against a company in administration to recover outstanding amounts.

An Administrator must satisfy one of the following aims:

Rescuing the company as a going concern, or failing that;
Achieving a better result for the company’s creditors as a whole than would be likely if the company were wound up (liquidated) (without first being in administration), or failing that;
Realising property in order to make a distribution to one or more secured or preferential creditors.

If this isn’t possible it may be that the company has to be wound up.

The Administrators will write to all known creditors of the company (as recorded by the company) as soon as is reasonably practical to inform them formally of the appointment.

The Administrators will send a report to all known creditors with 8 weeks of appointment. This report is known as the Administrators’ proposals and will outline steps taken by the Administrators to date and the strategy going forwards.

The Administrators are also required to provide a written update on the administration to all known creditors every 6 months. This report will be sent within one month of every 6 month anniversary or earlier if an Administrator vacates office or an extension to the administration is granted.

A pre-pack is a deal to sell the assets of a failed company. The deal is agreed “pre” the formal insolvency and is then usually completed almost immediately after the appointment of the Administrators.

It can be the best way of preserving value for the business, creditors and shareholders. If a business enters administration it may result in disruption, uncertainty and a likelihood that the business would be forced to cease to operate.

A pre-pack transaction can mean a smooth transition with enhanced realisations for creditors and the preservation of value for goodwill and the brands of the business.
If a pre-pack is applicable in an administration where you are a creditor, you will be sent information on why the pre-pack was used when you are notified of the appointment.

Employees will be addressed at a local level and all employees will be contacted in writing in due course. It is often the case that employees are transferred to a new company under the TUPE regulations. This means that you will keep any employment rights that have accrued in the old company. Eg the right to redundancy or increased holidays days.

On the date of the administration, all amounts that the company owes are frozen. The company’s assets will be realised and the proceeds, after the costs of the administration, will be allocated to the creditors depending on what type of creditor they are.

If a meeting of creditors is called, details will be sent in the Administrators’ proposals. The purpose of the meeting is to allow the creditors to consider and vote on the Administrators’ proposals. The meeting can also elect a committee of between 3 and 5 creditors’ representatives to assist and oversee the Administrators.

If a meeting isn’t called, the reason will be given in the Administrators’ proposals and details will be provided at this point in relation to what a creditor needs to do if they wish to call a meeting.

The company will pay for goods and services rendered to the business after the date of our appointment as Administrators against an appropriately authorised purchase order or letter of undertaking.

It is possible for you to enter into a compromise agreement with your company creditors. However, it will only be successful if all creditors enter into the agreement. A CVA is legally binding on the company and all the creditors so all creditors have to accept it. As a detailed agreement it needs to be governed by law, that law is the Insolvency Act 1986, and overseen by an insolvency specialist.

Suppliers can choose who they supply. However, they may want to continue to work with you as a good customer. Often suppliers will want paying up front, at least at the start of the CVA until trust is reestablished.  

Employee contracts continue. The CVA does not affect them.

The lender may agree to hold off claiming against the personal guarantee but it will be necessary to “sound them out” prior to proposing the arrangement

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