It’s a common misconception that the only option available for struggling businesses is liquidation, i.e closing the company down. Whilst liquidation may be the best option for some insolvent companies, many businesses may be able to recover their company’s finances and return to profitability. A company rescue plan sets out the strategy for turning the prospects of struggling companies around through methods including restructuring and refinancing. The company rescue plan will be prepared between directors and shareholders under the guidance of a licensed insolvency practitioner, and will balance the interest of all parties involved. This includes the interests of directors, shareholders, employees and creditors.
At Ballard Business Recovery we take a tailored approach when working with businesses, ensuring that we shape a company rescue plan that caters to the business’ individual needs. No two company rescue plans are the same, and we make sure to work closely with directors to listen to their needs, offering guidance based upon their individual requirements. The business rescue options that a company may have available to them can include the following:
Company Voluntary Arrangement (CVA)
A CVA can be an incredibly useful tool in a company rescue plan that alleviates creditor pressure, giving businesses the breathing space that they need to focus on recovery. The CVA is a binding contract between a company and its creditors that sets out a timeline in which liabilities will be repaid. This reduces creditor pressure whilst allowing directors to remain in control, with the company continuing to trade as recovery strategies are implemented. For a CVA to be used in a company rescue plan it’s important that the company has a realistic chance of returning to profitability once creditor pressure has been removed.
Refinancing
Another tool that may be used in a company rescue plan is refinancing. In business terms, refinancing refers to the process of restructuring or replacing existing debt with debts on more favourable terms, such as better interest rates. It may also involve issuing new equity to pay off debts through asset refinancing. Asset refinancing can be a useful part of a company rescue plan that allows businesses to release equity and raise capital using their existing business assets. This is important for struggling businesses who may not have access to traditional financing support such as commercial loans.
Company Administration
Administration is one of the most common tools used in a company rescue plan. The process protects the company from creditor pressure whilst providing an automatic stay on any current or pending legal actions. This allows for a period of restructuring in which efforts can be concentrated on rescuing the business on a going concern basis. Once the period of administration has finished, control of the company will be returned to the director as the business returns to profitability. In other circumstances administration may be used to facilitate the sale of the business, with the aim of providing a better return to creditors than would have been the case if the company had been liquidated instead.
Pre-Pack Administration
In a pre-pack administration, the sale of the business and its assets is agreed before an administrator is appointed. Once the administrator has been appointed, the pre-negotiated sale is officially implemented. The process differs to traditional administration as it means that the business is effectively ‘sold’ before news of the administration is announced publicly. Whilst a pre-pack administration does not rescue the limited company,it may be used in a company rescue plan in order to protect business continuity and value as the business is sold on a going concern basis. The process allows trading to continue uninterrupted, resulting in a higher return to creditors and the preservation of jobs.
If you are the director of a business that is struggling financially then don’t hesitate to get in touch with the team at Ballard Business Recovery. We’ll work with you to develop a tailored business rescue plan that sets your company on the road to recovery.
