"Administration versus CVA? What's best for our company"?

CVA Approach for "ABC Ltd".

Administration Approach: (plus or minus “pre-pack”), for "ABC Ltd".

Control – directors remain in control. They are helped by KSA. Obviously some directors do not want such close involvement.

The Administrator is in control. He decides if company is sold, liquidated or put into CVA. Directors have no control or input.

Breathing Space. Time to deal with the potential loss of confidence of any suppliers. Allow detailed analysis of the business requirements, production of marketing and business plan.

Breathing Space to allow restructure, sale or closure.  Company can propose a CVA if management and finance available.

Creditors receive dividends over time, they will be happy to receive that and KEEP a customer. KSA will help negotiate payments and deliveries if required.

In pre-pack creditors may receive NO dividend or very small payments but may keep customer if they supply newco.

The fees are not insubstantial for a CVA. They have to be paid out of cashflow. However, see below, cashflow is much improved by the CVA process. No lawyers’ fees required generally

Administration fees would be 5-10 times higher than CVA. Administrator controls the cash and takes his fees as he needs them (subject to later ratification from creditors).

Lawyers must be involved and the fees can be substantial

Leverage trade and tax creditors into CVA scheme. Freeze all creditor debts except bank.

Terminate properly lease and other lease / hire purchase contracts. Bind all claims and damages into CVA scheme.

Administrator MUST pay rent, rates tax and VAT during Admin period. If pre-pack used then the “Newco” must also pay tax and VAT from the outset. NO tax leverage.

Administrator can negotiate exit from properties, only liquidator can disclaim the lease.

The overdrawn director’s current account must be repaid to the company. Often in as little as 6 months. .

If not cleared before any Administration directors are required to personally repay the loan.

Time defined process – fixed date of creditors meeting means crystallising of position. KSA talks to creditors, removes pressure from directors.

Equity value of the business written off. (Unless CVA proposed after Administration). Loans written off.

You would have to “buy back” the business if pre-pack. Where is the capital going to be sourced from?

Flexible plan under the CVA, we would forecast minimal monthly contributions to the CVA as profits will be low in year 1.  Profit related ratchet kicks in if the business exceeds profit forecast.

All invoices, purchase orders, faxes, emails and letters will have to state the company is in Administration. This would severely damage marketing and sales.

Protects the company from aggressive action by creditors. Exclude critical creditors but likely that company will have to pay upfront (pro-forma) for new services/ supplies.

Unsecured creditors lose most of their debts.  Newco would have to pay upfront (pro-forma) for services/supplies

CVA Approach.

Administration Approach: (plus or minus “pre-pack”).

The company can utilise current work in progress to turn into cash. Collect out WIP & debtors. Both over time and with no reduction in asset value.

If not a pre-pack the business will be advertised for sale as a matter of course. Could be several interested parties who will need to be shown around and sales memorandum prepared. Debtors harder to collect.

KSA “quaisi” Finance director involved going forward to help structure the financial reporting of the business, attract investment, adherence to CVA plan and building the final business plan.

If a trading Administration, the directors can be instantly removed without recompense under s13 Insolvency Act 1986. Administrator can appoint directors or managers.

No investigation into directors’ conduct.

Investigation into the conduct of the officers in the 3 years up to the terminal insolvency of the company.