Restructuring Options

Question 1

What is an informal creditors arrangement

Answer 1

An informal creditors arrangement is a non-binding agreement between a company and its creditors to renegotiate repayment terms, such as extending deadlines or reducing the amount owed​.

Advantages:
Flexibility – Allows the company to negotiate repayment schedules based on cash flow.
Retains Management Control – Directors continue to run the company without external interference.
Preserves Business Relationships – Demonstrates goodwill to creditors and avoids formal insolvency proceedings​.

Disadvantages:
Not Legally Binding – Creditors may withdraw their agreement at any time.
Limited Debt Reduction – Creditors may not agree to reduce the overall debt, only reschedule payments.
Requires Creditor Cooperation – Success depends on the willingness of creditors to negotiate​.

Question 2

What is a Company Voluntary Arrangement (CVA)?

Answer 2

A CVA is a legally binding agreement between a company and its unsecured creditors, allowing the company to restructure its debts while continuing to trade​
.

Q: What are the legal requirements for a CVA?
A: A CVA requires approval from:

75% or more in value of the company’s creditors.
50% or more of non-connected creditors.
Once approved, it binds all unsecured creditors but does not affect secured creditors unless they agree​.

Advantages:
Legal Protection – Prevents unsecured creditors from taking legal action.
Business Continuity – Allows the company to continue trading.
Debt Repayment Certainty – Provides a structured and legally enforceable repayment plan.
Managed by an Insolvency Practitioner – Ensures professional handling of creditor negotiations​.

Disadvantages:
High Approval Threshold – Requires 75% creditor approval, which may be difficult to obtain.
Costs for Insolvency Practitioner – Professional fees may be significant.
Non-Compliance Risks – If the company fails to meet CVA terms, creditors can initiate compulsory liquidation​.

Question 3

What is administration?

Answer 3

Formal procedure to rescue/rehabilitate potentially viable companies.
Process: Appointment by the company, directors, or qualifying charge holder.

Advantages:
- Moratorium on Creditor Actions – Prevents creditors from enforcing debts while the company is assessed.
- Potential for Business Rescue – If successful, administration may allow the company to recover.
- Asset Management – The administrator prioritises secured creditors and attempts to maximise asset value​.

Disadvantages:
- Loss of Management Control – Directors lose authority as the administrator takes over.
- Significant Costs – Administration is an expensive process due to professional fees.
- Uncertain Outcome – The company may still end up in liquidation if the administration fails​.