Bolton News Corporate Recovery
4th June 2008
Comment from Gary Bell, partner at Cowgill Holloway Business Recovery LLP, for the Bolton News business doctor feature.
Q: I run a small manufacturing company based in Bolton that’s run into serious financial difficulties because our accounts have not been properly managed. Our overdraft credit and loans have all been used, and our options for continuing to trade look slim. What choices do we have?
“One of the biggest mistakes that struggling businesses make is ignoring financial problems until it’s too late. However, an organisation may be able to turn a positive corner if they turn to professional advisers who specialise in turnarounds/corporate recovery for help when the financial strain becomes too much to handle. These professionals can look at the financial status of the business and determine whether it is really heading for insolvency, or if matters can in fact be reconciled.
“One option available to companies in this situation is a Company Voluntary Arrangement (CVA). A CVA is a formal procedure under which companies experiencing cash flow difficulties can continue to trade with the intention of improving their financial situation with creditors. In addition to easing cash flow, it stops court action and winding up procedures, and, upon acceptance, the directors remain in control of the business.
“CVAs, however, can last up to five years and do not always allow for flexibility. For example, if, during the post CVA period, a company encounters more financial difficulties before the fixed period is up, it may find itself in a position where it is unable to pay the agreed instalments, in which case a CVA would normally end in failure. In addition, new creditors could still instigate proceedings against the company for debts incurred after the CVA has been approved.
“Businesses can often be saved from closure as long as the underlying business is reasonably sound. Even if this is the case, the fact that the credit crunch is affecting some funders’ willingness and ability to finance a restructuring or turnaround scenario may mean that the company has no option but to seek the protection of an administration order to allow some breathing space whilst professional advisers decide the best course of action.
There are advantages and disadvantages to every option available to companies in difficulty, so it is important that an organisation works closely with its advisers to ensure they are opting for the best possible arrangement for their business and call them in early enough to ensure every effort to restructure has been considered.”
The information was correct at time of publishing but may now be out of date.