Administration Vs Company Voluntary Arrangement
Company Administration and Company Voluntary Arrangement both provide valuable breathing space to insolvent companies which face the prospect of closure, but are deemed to have a viable long-term future. Both of these legal procedures must also be overseen by a licensed Insolvency Practitioner. So how do they compare?
Company Administration – a powerful business rescue option
Company Administration is the most commonly used process to rescue an insolvent business and avoid company closure. It is a powerful mechanism for providing court protection against aggressive creditors while a business rescue plan is put in place.
Qualifying criteria are that the company must have reasonable cash flow and profitability projections so that it can be rescued as a going concern. It is often followed by a Company Voluntary Arrangement (see below) and may involve a Pre-Pack, whereby assets are sold and transferred into a new company. This can make the business rescue process even quicker and more cost-effective.
One of the biggest advantages of Company Administration is the speed at which it can be put in place. Creditor legal actions can be stayed in a matter of hours for at least ten working days via a Moratorium. Further deterioration is halted because debts are frozen and a reasonable timeframe is allowed for a rescue plan to be activated and realised.
It’s a solution that looks after everyone’s best interests.
Company Voluntary Arrangement: defer repayment of debts and continue to trade
A Company Voluntary Arrangement (CVA) takes around 28 days to approve and is a popular alternative to liquidation. As long as 75% of unsecured creditors approve the CVA, it allows a limited company an extended period of time to pay back creditors and often a reduction in the amount that has to be paid back.
Key benefits of a Company Voluntary Arrangement include:
- Eased cash flow because of deferral of payments
- The company is under court protection while creditors consider the CVA proposal
- Repayment structures can be flexible, but if payments aren’t consistent the company may pass into liquidation
- The company can continue to trade under the control of existing directors
- No liquidation or administration process is required
- Existing finance can be left in place
- Directors conduct will not be investigated
We hope this blog has helped to clarify your options. Have you found it useful?