A company voluntary arrangement represents a crucial lifeline for businesses facing financial difficulties. This formal agreement between an insolvent enterprise and its creditors establishes a structured repayment plan, typically spanning up to 5 years. But what happens once the arrangement concludes? Read on for more information.
It is crucial that directors understand the aftermath of a company voluntary arrangement, as only then can they make an informed decision to take this path when navigating their business through challenging financial waters.
The Business Emerges Debt Free
When a business successfully completes its obligations under the arrangement, it emerges debt-free regarding the liabilities included within the agreement. This fresh start allows the organisation to continue trading without the burden of historical debts, potentially positioning it for future prosperity. However, the journey following a company voluntary arrangement involves numerous considerations that require careful attention.
The Transition Period After The Company Voluntary Arrangement Is Completed
The transition period after fulfilling all arrangement requirements presents both opportunities and challenges. Companies must rebuild their credit profile, restore relationships with suppliers, and implement sustainable financial practices to prevent recurring difficulties. Additionally, they need to address any lingering reputational damage resulting from the insolvency process.
The Problems Associated With Failing To Meet The Terms of The CVA
For businesses that, unfortunately, fail to meet their arrangement obligations, different outcomes await. The consequences of defaulting on agreed payments can lead to alternative insolvency procedures, potentially resulting in the company’s dissolution. Understanding these potential scenarios helps directors make informed decisions throughout the arrangement’s duration.
Successful Completion of a Company Voluntary Arrangement
The formal conclusion of the arrangement typically involves the supervisor (the appointed insolvency practitioner) issuing a completion certificate. This document officially confirms that all terms have been satisfied and the arrangement has successfully concluded. The supervisor will distribute a final report to all creditors, detailing payments made throughout the arrangement period and confirming its successful completion.
The Business Regains Complete Control Of Its Affairs
Following this milestone, the business regains complete autonomy over its financial affairs. During the arrangement, companies typically operate under certain restrictions regarding expenditure and business decisions. Once completed, these constraints lift, allowing directors to make independent financial decisions without supervisor approval. This newfound freedom enables more agile business operations and strategic planning.
Not All CVAs Succeed
It’s worth noting that successful completion represents a significant achievement. Many arrangements fail before reaching their conclusion, with research suggesting completion rates hover around 65-70%. Businesses that navigate the entire process demonstrate remarkable resilience and financial discipline, qualities that bode well for future prosperity.
Financial Implications Post-Arrangement
The financial landscape following a company voluntary arrangement presents both challenges and opportunities. While historical debts included in the arrangement become discharged, the business must rebuild its financial standing. Credit ratings inevitably suffer during insolvency proceedings, and this negative impact doesn’t immediately disappear upon arrangement completion.
Restricted Access to Finance Is Common
Most companies experience restricted access to credit facilities for several years following arrangement conclusion. Lenders typically view these businesses as higher risk, resulting in less favourable borrowing terms when financing becomes available. This reality necessitates careful cash flow management and potentially more conservative growth strategies until credit worthiness improves.
Banking relationships often require rebuilding post-arrangement. Some businesses find their existing bank unwilling to continue providing services, necessitating new banking partnerships. When establishing these relationships, transparency about the completed arrangement proves essential, as does demonstrating the improved financial management practices implemented during the arrangement period.
On a positive note, the discipline required throughout the arrangement often instils stronger financial practices within the organisation. Many businesses emerge with enhanced budgeting processes, more rigorous financial controls, and greater awareness of key performance indicators. These improvements frequently contribute to stronger financial performance in subsequent years.
Operational Changes Following Arrangement Completion
Most companies implement significant operational changes during their arrangement period to ensure viability. These modifications typically continue post-completion, forming the foundation for sustainable business operations. Common adjustments include streamlined staffing structures, optimised production processes, and more efficient resource allocation.
Supplier relationships require careful attention following the CVAs conclusion. During the arrangement, many suppliers most likely operated on cash-on-delivery terms or with reduced credit facilities. Rebuilding these relationships takes time and consistent performance. Gradually, as trust rebuilds, more favourable trading terms may become available, improving cash flow and operational flexibility.
Good Communication With Your Customer Base is Essential
Customer perception represents another crucial consideration. While some clients remain unaware of the arrangement, others might have concerns about the company’s stability. Proactive communication about the successful completion and the business’s strengthened position can help address these concerns. Emphasising the positive changes implemented during the arrangement period often reassures hesitant customers.
Management structures frequently evolve post-arrangement. The experience often highlights leadership strengths and weaknesses, potentially leading to personnel changes or restructured responsibilities. Many businesses benefit from bringing in fresh perspectives through new board members or advisors with turnaround experience, helping cement the positive changes implemented during the arrangement.
Legal Status and Reporting Requirements
Following successful completion, a company’s legal status normalises. During the arrangement period, the business operated under certain restrictions and had additional reporting obligations to the supervisor. These requirements cease upon completion, although standard corporate reporting continues as normal.
Companies House records will permanently reflect the historical arrangement. This information remains publicly accessible, potentially influencing some stakeholders’ perceptions. However, as time passes and the business demonstrates consistent performance, the significance of this historical information typically diminishes.
Directors Duties Revert to Statutory Obligations
Directors’ duties revert to standard obligations following arrangement completion. During the arrangement, directors had additional responsibilities to the supervisor and creditors. Post-completion, their primary duty returns to acting in the best interests of the company and its shareholders, although maintaining financial discipline remains crucial to prevent recurrence of difficulties.
Tax considerations warrant attention post-arrangement. In some cases, tax liabilities arising during the arrangement period might have received preferential treatment. Ensuring full compliance with tax obligations following completion helps prevent new financial difficulties from emerging.
Failed Arrangements and Alternative Outcomes
Unfortunately, not all arrangements reach successful completion. Various factors can lead to failure, including unrealistic payment projections, unexpected market downturns, or fundamental business model flaws. Understanding the consequences of arrangement failure helps directors navigate these challenging scenarios.
Sometimes It Is Necessary To Extend the CVA
When a company defaults on its arrangement payments, the supervisor typically explores whether modifications might salvage the situation. This could involve extending the arrangement duration or adjusting payment amounts. However, such changes require creditor approval, which may not be forthcoming if confidence in the business has eroded.
If modifications prove impossible, the arrangement terminates, removing the protection it provided. Creditors regain their right to pursue the full debt amount, potentially leading to winding-up petitions. At this stage, alternative insolvency procedures become likely, with liquidation representing the most common outcome.
In some cases, administration might offer an alternative to immediate liquidation. This process provides breathing space to explore whether parts of the business remain viable and could be sold as a going concern. While this doesn’t preserve the original company, it might save jobs and maintain some business continuity.
Building for Future Success
Companies that successfully navigate through and beyond their arrangement often emerge stronger and more resilient. The experience typically forces fundamental business model evaluation, elimination of unprofitable activities, and implementation of robust financial controls. These improvements position the business for sustainable future growth.
Many post-arrangement businesses adopt more conservative financial strategies. This might include maintaining higher cash reserves, reducing reliance on debt financing, and implementing stricter investment return criteria. While potentially limiting growth rates, these approaches reduce vulnerability to future financial shocks.
Regular financial health assessments become standard practice for many post-arrangement businesses. Monitoring key indicators allows early identification of potential issues before they become critical. This proactive approach helps prevent recurrence of serious financial difficulties that might necessitate further formal insolvency processes.
Businesses Are Often Stronger After a CVA
Finally, businesses that successfully complete arrangements often benefit from the experience in unexpected ways. The process frequently builds resilience within the organization, develops crisis management capabilities, and creates stronger stakeholder relationships. These intangible benefits can provide competitive advantages in navigating future business challenges.
Source: Cosmo Politian
