Administration vs CVAs – Advantages, drawbacks and support - Palmers Solicitors

Administration vs CVAs – Advantages, drawbacks and support

Administration vs CVAs – Advantages, drawbacks and support

When your business faces financial distress and struggles to repay debts, some insolvency procedures can serve as valuable tools for restructuring rather than simply dissolving your business.

These frameworks, used correctly, can even provide a pathway to recovery and future stability. Our insolvency expert, Luke Morgan, takes a look at the challenges and benefits of the two most widely used methods.

What are your insolvency options?

Administration

Administration is aimed at rescuing a company as a going concern.

This process stops any legal action from creditors, even if already in progress, and allows the business to operate under the management of an appointed administrator.

The administrator’s role is crucial in managing the company’s affairs, business, and property with the objective of either restoring the company’s financial health to continue its operations, selling the business to a new owner or realising assets to repay creditors.

With strong industry contacts we can support you in the process of filing for administration, as well as providing advice on the responsibilities and powers of the administrator, the preparation of proposals for restructuring and negotiating with creditors.

Company voluntary arrangements (CVAs)

A CVA allows a company experiencing financial difficulties to reach an agreement with its creditors about the payment of all or part of its debts over an agreed period.

Depending on the situation, CVAs are attractive as they enable company directors to retain control of the business, while also hitting pause on legal action and creditor claims that might otherwise push the company into liquidation.

In this situation, it is essential that business owners seek support with structuring the proposal to creditors to ensure it offers a viable and fair approach for debt repayment – anything else may result in refusal.

Negotiations with creditors

Effective negotiation with creditors will form the core of any rescue strategy, whichever option you choose.

Solid legal advice should guide how you approach these conversations because it can help you to secure favourable terms that support business recovery relating to:

  • Overall debt
  • Repayment terms
  • Creditor support of restructuring plans

Which is right for you?

Each insolvency option carries distinct legal implications and strategic advantages which may influence your decision alongside the requirements of your specific situation:

  • Administration offers a lifeline for businesses that are not yet irretrievably broken but need significant restructuring to survive, with breathing space to implement operational changes and strategic pivots.
  • CVAs allow for more flexibility and can be seen as less hostile by creditors since the proposal needs their approval to proceed, potentially facilitating better relations with creditors post-restructuring.

Ultimately, we and our contacts can help you to assess the suitability of each insolvency procedure based on the specific circumstances of your business, ensuring you understand the risks and benefits to make an informed decision which aligns with your long-term goals.

Please contact our Insolvency team to discuss your requirements and find out how we can support you.