A company voluntary arrangement or voluntary arrangement is a contract agreed between a company (often a company in a business recovery or business turnaround situation) and its creditors. A voluntary arrangement is often used by a company restructuring itself as part of a business recovery strategy to bring about a company rescue. It is used as a business restructuring tool to assist with company rescue and business turnaround, and can be very effective in this way by taking the pressure off a business turnaround situation by removing the threat of immediate proceedings against the company by one or more of the company’s creditors.
What is a voluntary arrangement for a company?
A company voluntary arrangement does not require that the company is insolvent, although inevitably there will be financial difficulties to require an agreement with creditors, and a company voluntary arrangement is likely to be part of a business recovery strategy for business recovery and company rescue.
The terms of the contract between the company and its creditors are tailored to the circumstances of the company requiring business recovery. Essentially the creditors of the company under the company voluntary arrangement 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 they will not take proceedings against the company during the period of company restructuring and business turnaround in the voluntary arrangement.
Key benefits of a voluntary arrangement
From the point of view of a company creditor, the benefit of a company voluntary arrangement in a business recovery is that part of the voluntary arrangement and the company rescue package is usually that specific money will be set aside for the company voluntary arrangement only, sometimes from the sale of parts of the business in business turnaround, or from a third party, or by new funding being introduced. Therefore, whilst in a company voluntary arrangement creditors may not be repaid in full, as part of a business recovery strategy they are likely to achieve a better outcome than if the company were put into a formal insolvency process.
Advantages of a voluntary arrangement
For the company undergoing the company restructure and the business turnaround process, the advantage of a company voluntary arrangement and why this is sometimes suggested by a business rescue expert, is that all creditors of the company at the time the voluntary arrangement is put in place 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 company voluntary arrangement.
Any company considering a company voluntary arrangement as part of their business recovery strategy and company rescue plan, should contact our company voluntary arrangement expert team at Francis Wilks & Jones who can discuss with you whether a company voluntary arrangement is a useful tool for your business restructuring. Contact us to discuss further.