BUSINESS RECOVERY

Often the preferred option for businesses, a CVA will likely produce better results for all parties than administration or liquidation. The company is able to attempt to continue to trade out of their financial situation, and the directors are able to remain in control over the business.

A CVA represents the best business recovery option available for a lot of companies, particularly those that have a viable business going forward, but are just burdened by debt in the short-term.

Typically the duration of a CVA is up to five years and must be monitored by a licensed insolvency practitioner.

A PVA is an agreement for a business to repay a proportion of its debt to creditors. The idea behind a PVA is to provide creditors with the option of receiving a higher return than if the business were to be wound up/liquidated. It also benefits the debtor because it gives them an opportunity to restructure their business.

The core of a PVA involves the creation of a proposal, often with assistance from an insolvency practitioner, that sets out the terms of repayment of the debt across a three-to-five year period. As long as 75% (by value) of the creditors agree to the proposal, the debtor will immediately begin repayment based on whatever terms were initially agreed upon.

Any debt that remains come the end of the agreed upon PVA terms are to be written off, allowing the creditors to receive a large chunk of the debt owed, and the business to continue trading without the weight of significant debt on its back.

Administration occurs when a company that is faced with serious financial difficulties, and the potential threat of insolvency, hopes to regain some semblance of control of their situation. The firm will appoint an official administrator to take control of the business, including all company assets and operations, to act in the best interests of the firm’s creditors.

While in administration, the business has a moratorium placed over it that allows it to take stock of their operation, establish what the issues are in order to attempt to address them, and work out how they are going to repay creditors — all while being protected from any possible legal action from the creditors.

In order for administration to be sanctioned, it must be proven to be justified to the court, and be the last resort and best chance for creditors to receive their money.

Somewhat a rarity today due to a change in the law in 2003, company receivership acts to allow creditors with a floating charge to appoint an administrative receiver to act on their behalf to manage a struggling business and its assets — and to sell them if it is deemed necessary to recover the debt.

Receivership has traditionally been most prevalent when a business has borrowed from a lender, such as a bank, to purchase property or high value machinery but is unable to repay the loan and finds itself having to go against their agreed deal.

Today, administrative receivership can only be requested if the business in question existed prior to the 15th September 2003. For any company created after this date, creditors will instead have to look to alternative solutions such as administration.

However, forms of company receivership do still exist in some ways, most prominently in a fixed charge, or law of property act receiver, and can be utilised if the situation allows.

While not necessarily a process of getting out of financial distress, a business can utilise a moratorium to allow itself some additional breathing room while company directors assess and take stock of their predicament, attempt to find a way to trade out of it, or seek specialist assistance.

During the process of debt moratorium, an insolvency practitioner will be appointed with the intention of overseeing the process, to act on behalf of the creditors to ensure that their money is secure.

Generally, a moratorium lasts 20 business days, but it is possible to extend it by a further 20 business days if the debtor feels it is necessary, and for up to a year if approval is gained from creditors. Extension beyond one year will require explicit approval from the courts.

Business restructuring is the process whereby companies faced with financial difficulties are afforded the opportunity to compromise with creditors, to come up with a way to restructure and reshape operations with the goal of reducing the businesses debt and improve the performance of the firm.

For corporate restructuring to take place a business must have an agreement of 75% or more (in terms of value) of creditors, the firm must be in or close to being in financial difficulties that will affect its ability to operate, and the goal of the restructuring must be to eliminate/mitigate debt.

There are four distinct types of business restructuring, which are:

• Mergers and Acquisitions: The process of one company being purchased/absorbed into another. Mergers and acquisitions are most common as a way for struggling companies to find a way to keep the business running, or for two firms to mutually grow.
• Demerger: This is where the process of a merger is deemed to have been unsuccessful so both parties agree to separate. This could be as a result of a clash of ego, differing ethos, or as a way to streamline ahead of a takeover.
• Strategic Business Alliance: A strategic alliance takes place when two or more companies make an agreement to combine their knowledge/resources to work together to the benefit of each party, while maintaining independence throughout.
• Joint Venture: This is when two or more parties merge to initiate a new business venture with control shared evenly. All company responsibilities (such as expenses and income) are split amongst the participants.