Manchester Evening News – Corporate Recovery Feature
“One of the biggest mistakes that struggling businesses make is ignoring financial problems until it’s too late. Regardless of the credit crunch, an organisation may be able to turn a positive corner if they turn to professional advisers for help when financial strain becomes too much to handle. Corporate recovery specialists can look at the financials of the business and determine whether it is really heading for insolvency, or if matters can be reconciled.
“One option available to companies in this situation is a Company Voluntary Arrangement (CVA). CVA is a formal procedure under which companies experiencing cash flow difficulties or a one off expected event repay creditors in full, or a percentage in the pound over a fixed period.
“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 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 insolvency 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/ability to finance a restructuring/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 the options available to companies in difficulty, so it is important that an organisation works closely with its adviser to ensure they are opting for the best possible arrangement for their business.
“It is difficult to say how much impact the credit crunch will have on the economy and therefore the corporate recovery market. I do not anticipate seeing the full impact for another three to six months, at the earliest.”
The information was correct at time of publishing but may now be out of date.