A company voluntary arrangement is a contract between a company and its creditors whereby the creditors will agree not to bring proceedings against the company for their debts during the period of the company voluntary arrangement. In return the company will promise to repay the debts under the agreed terms of the contract.
It is important to note that any future debts will not be subject to the arrangement, and must be dealt with on an on-going basis. If future debts increase to the point where a creditor decides to wind up the company, then that can still pose a risk to the company. Directors considering if a voluntary arrangement is appropriate, must be very mindful of future debts and servicing the same, as well as being able to meet the terms of the company voluntary arrangement.
How is a company voluntary arrangement put in place?
The company will first need to speak to a licensed insolvency practitioner. A licensed insolvency practitioner will act first as a nominee in relation to the proposed voluntary arrangement, and then act as a trustee over the arrangement, supervising it to ensure that it remains on track. If it doesn’t, then the trustee will have to bring the company voluntary arrangement to an end.
- the directors, in conjunction with the nominee, draft a proposal based on creditors outstanding, what income is forecast, and taking into account the benefit of any third party funds which may help speed up the process of repaying creditors.
- it is vital that the company is confident that the terms of the voluntary arrangement will realistically be met. Otherwise, the company is wasting time and money. If this is not the case, then discuss with the insolvency practitioner whether an alternative procedure, such as administration or liquidation, may be a better route to take.
Only the directors of the company can propose a company voluntary arrangement. The proposal must be approved by both the shareholders and creditors in order to proceed.
Every creditor of the company must be given the opportunity to consider the proposal and vote on it. For the voluntary arrangement to be approved there must be a majority of three quarters or more in value of creditors voting in favour. This will bind the minority.
Once the creditors and shareholders have made their decision the chairman will report to the court on the proposal within a specified time frame, providing prescribed information set out under legislation. There is a short period provided where the voluntary arrangement may be challenged for various reasons. Thereafter, the company voluntary arrangement will be implemented if it has been voted in favour.
At Francis Wilks & Jones we frequently act for both companies, creditors and insolvency practitioners in the company voluntary arrangement process. It can be a very useful tool for a viable company that needs some breathing space to turn itself around. If you think that this might be an option for your company, contact our company voluntary arrangement expert team today to talk through your options.