As well as assisting individuals undergoing financial distress, we also have experience in corporate restructuring by means of formal and informal processes.The main formal processes are set out below, but we also have any number of restructuring tools to assist if your business is suffering cash flow difficulties.
1. Company Voluntary Arrangement (CVA) – A CVA is a proposal put to your business creditors. It has 2 stages, a nominee stage and a supervisor stage. In the nominee stage, the IP puts together the proposal based on information gathered from company records. The business creditors then vote at a meeting called for that purpose as to whether they accept the proposal or not. In order to be a success, 75% in value of those creditors who vote need to agree. In return for making payments to then, the creditors agree to take no enforcement action against the company. There is usually an element of debt sacrifice allowed in the CVA. When the CVA proposal has worked through to its conclusion, the company comes out of the CVA and is allowed to trade on. There is no change to the legal entity. It is not the end of the company.
2. Administration – When a company enters administration a bubble is placed around the company stopping any action being taken against it. Within 10 weeks of the date of administration, the IP has to put proposals to creditors as to how the administration is to be run. This is different from a CVA as it is the IP’s proposals rather than the companys. An administration does not necessarily mean the end of a company, it can be used to give a company breathing space to deal with historic debts.There are 3 reasons why a company may enter administration:
1. Better realisations to creditors than if the company were to be wound up
2. To make distributions to one or more secured creditors
3. To return the company t directors as a going concern.
There always has to be an exit strategy for an administrator either exit via a CVA, Creditors Voluntary Liquidation or dissolution of the company. The administration takes into account all of the company’s assets at the date of administration. There is normally an element of debt forgiveness.
3. Pre-pack administration – This process has had some negative coverage, but it is a true restructure and recovery process which used properly can aid businesses. At Middlebrooks we can guide you through the steps required. Essentially a pre-pack administration entails the sale of some or all of the business prior to the formal administration process. The business creditors are informed, but it is predominantly for information only and they have very little say. A pre-pack is normally used where there is a reputational risk that would adversely affect the value of the business assets.
4. Liquidation – This is the end of the company’s life. Liquidation is a wind up of the company taking account of all it’s assets and liabilities as at the date of liquidation. The IP realises the company’s assets and distributes them either direct or by means of an auction site. Your fiduciary duties as a director remain, but you no longer run the company and the IP maintains and disposes of all the books and records.
5. Solvent liquidations – A members voluntary liquidation is a solvent winding up. The MVL allows shareholders to withdraw funds in a tax efficient manner. Usually Middlebrooks works closely in tandem with your tax advisor to ensure maximum benefit is achieved.