One way in which this might be possible include what is called a corporate voluntary arrangement (CVA). Under the CVA route, directors make a proposal to the company’s creditors for the company to repay them a proportion of what they are owed over some period of time which could be a number of years. This amount is called a dividend and is sometimes significantly lower than the amount that is due to the creditors.
Directors often ask how much creditors are likely to accept and the easy answer is that it depends! On two things, firstly what the company can afford to realistically pay and secondly what the alternative is for the creditors.
The simple answer to the question "Is it really possible to wipe the slate clean?" can, therefore, sometimes be yes but professional advice must be taken. There are a number of factors that need to be considered.
The company will need to prepare profit and cash forecasts to show how it will pay the dividend and this may also depend on its underlying business, its profitability, its ability to raise funding, or to sell assets. The directors have a great deal of flexibility when formulating how the divided will be paid.
The creditors will also need to understand what the alternatives are, for example, what they will get if the company goes into liquidation?
Once prepared the proposals will be put to creditors and shareholders at a meeting and if they agree the proposal then it will become legally binding.
The benefits of the CVA are great.
The directors retain control of the company, the Insolvency Practitioner who helps them formulate the proposal only supervises the agreed CVA and collects the dividend cash and pays it over to the creditors.
The business also survives since the CVA creditors are frozen and the company carries on trading as normal.
Gore and Company works with directors to provide clear and concise advice on corporate restructuring based on a sound investigation of the company’s financial difficulties.