Company Voluntary Arrangement
This procedure is available to the directors of a limited company or of a partnership being wound up as a limited company. This includes the winding up of a Limited Liability Partnership.
It involves putting together a document in which the reasons for the problems that have arisen are set out, the financials are specified and an offer of repayment is made to the creditors of the company. This is put together by the insolvency practitioner who will act as the Supervisor for the Arrangement if it is successful. It can however only be put together with information given by the directors and with significant input from them in relation to financial information.
An Arrangement is successful if sufficient creditors vote for it at the meeting that is called to consider it.
Offers of repayment can include monthly instalments over a period of time - usually not exceeding 5 years. It can alternatively involve third party monies being made available with the Arrangement lasting for a shorter term or it might involve a proposal for refinancing of the debt within a specified time period. There are many permutations of what can be offered and there is no restriction on what is possible other than in terms of it being attractive enough for the creditors to accept it in full and final settlement through the Arrangement procedure.
Normally an Arrangement would be expected to enable a business survival rather than a closure, although anything is possible if it brings a better return to the creditors than would otherwise be the case in an immediate closure. Proposals will usually involve restructuring with some significant changes to working patterns and cutting of overheads so that the creditors can be confident that any plan put to them is likely to succeed.
HMRC will need to be carefully considered at the outset as they will not support proposals if no attention has been paid to tax arrears and missing returns. It may be necessary to pay urgent attention to submitting missing returns before Proposals can be put forwards.
At the meeting of creditors not less than 75% of those voting have to approve it for it to be successful but as long as that majority is reached, then everyone notified of the Arrangement whether voting or not, will be bound by its terms.
Once it is approved the directors will need to ensure that whatever they have promised to do is done on time. The Supervisor will receive claims from creditors and will be the responsible person in relation to receipt of any monies forming part of the Arrangement. The Supervisor distributes the funds to the creditors under the terms of the Arrangement proposals and if anything goes wrong the Supervisor will also be the person who will issue any notices of breach and take any additional action required.
An Arrangement is not advertised and it is personal to the directors. No two Arrangements will be entirely the same because every company will have unique issues and disparate types of business. Creditors may want modifications to what is proposed by the directors but there is a greater sense of control for the directors over their destiny.
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