A company voluntary arrangement is a binding contractual agreement made between a company (often in business turnaround) and its creditors. A voluntary arrangement is often used by a company restructuring itself as part of a business recovery strategy to achieve a company rescue. It is essentially a business restructuring tool to assist with company rescue and business turnaround because it takes the pressure off a business turnaround situation from the threat of immediate proceedings by one or more of the company creditors.
What is a voluntary arrangement for a company?
A company voluntary arrangement is a contractual voluntary arrangement made between a company and its creditors. The company voluntary arrangement does not require that the company is insolvent.
A company voluntary arrangement is a flexible arrangement. The terms of the contract between the company and its creditors are tailored to the particular circumstances of the company requiring business turnaround. In essence, the creditors of the company under the company voluntary arrangement will assist in the business recovery strategy of a company which may not be able to meet all its creditor debts on an ongoing basis, by agreeing to a, usually reduced, sum in repayment of their debts. In return the creditors will not take proceedings against the company.
Advantages for the company creditors of a voluntary arrangement
The benefit of a company voluntary arrangement in a business recovery from the point of view of the creditors is that part of the voluntary arrangement and company rescue package will be that there will be specific money put aside, sometimes from the sale of some parts of the business in business turnaround, or from a third party, or by new funding being introduced into the business turnaround specifically to meet the debts of the creditors owed money. Therefore, whilst in a voluntary arrangement creditors may not be repaid in full, as part of the business recovery strategy, they are likely to achieve a better outcome than if the company were, for example, wound up.
Advantages for the company of a voluntary arrangement
The advantage of a voluntary arrangement from the point of view of company rescue, and why this is sometimes suggested by business rescue experts, is that all creditors of the company at the time of the voluntary arrangement are bound by that company voluntary arrangement if they were entitled to vote, even if they didn’t vote in favour of the company voluntary arrangement. The company voluntary arrangement will be enacted if the majority of three quarters in value of approving creditors agree, and they will bind the minority of creditors in any voluntary arrangement.
Any company considering a company voluntary arrangement as part of a business recovery strategy should contact our company voluntary arrangement expert team here at Francis Wilks & Jones. We can discuss if this is the right procedure for your business restructuring. A company voluntary arrangement can be an excellent company rescue tool if used in the right circumstances. Contact us to discuss further.