I have often been asked to advise Directors in relation to the financial position of their company when their view, and the reason for them being put in touch with me in the first place, is that they see liquidation as the only option.
This will be based on a number of factors including:
– pressure from current funders to either re-pay or reduce existing facilities;
– poor performing areas of the business;
– increasing creditor pressure; and
– management fighting financial fires rather than concentrating on running the business.
But liquidation isn’t always the answer.
One option to be considered is a Company Voluntary Arrangement (CVA). Now it’s true to say that, to date, CVA’s have not had a great track record but I would suggest that they have been inappropriately used. Where funding may be difficult to access, the ability to effectively release working capital by agreeing a scheduled repayment of debt or a debt write-off with creditors is proving to be an increasingly valuable tool.
The key ingredients of a CVA are to have:
– a viable business that is able to generate cash to make the agreed contributions;
– available funding that will enable the business to continue trading; and
– the answer to the creditors’ question – what is going to be different going forward?
The viability of the business is assessed in conjunction with the Directors and funding options will be a matter for discussion with the current lenders. There are an increasing number of providers who are able to provide CVA funding so this doesn’t have to be a major issue. As regards what is going to be different going forward the proposed changes need to be credible and deliverable.
Our experience at Ensors will assist the Directors in assessing what parts of the business need to change, implementing the changes and formulating a CVA proposal. We will also liaise with the major stakeholders to ensure that it has the best chance of being accepted by creditors.
Clearly a CVA is only one rescue option and Administration or even informal arrangements with creditors could be the most appropriate way forward. The key, I believe, is to acknowledge financial difficulties at an early stage and take appropriate professional advice as this will hopefully ensure that rescue of the business is a viable option.