Company options - Trading out / informal arrangements
Where there is a viable core trading business to be saved and there are robust and realistic financial projections going forward, this can provide an appropriate platform for an informal arrangement.
A proposal for such an arrangement can be submitted to creditors and an arrangement reached for trading on without the need for a formal insolvency procedure.
The advantages of informal arrangements include their flexibility, less stigma, less publicity, normally less costs and that is can avoid a formal insolvency procedure. In addition, the directors will remain in control of the company.
Options to fund an informal arrangement
| Restructure unprofitable areas of the business | Cost - cutting | Director / Shareholders invest funds |
| Refinance unencumbered assets | Mortage property | Third party investor |
| Debt factoring | Time to pay arrangement | Debt / interest forgiveness |
| Sales of surplus assets | Extension of a loan term | Capital / interest repayment holiday |
In this scenario, it is vital that all steps and decisions are properly recorded so that the business owners and the advisors are not exposed to litigation if all does not go according to plan.
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If relations have historically been good, there can be an opportunity to agree an informal arrangement with creditors.
However, this process is only likely to succeed if there are a small number of key creditors.
These arrangements are generally not legally-binding and therefore it only takes one creditor to break rank for the whole rescue process to collapse (and formal insolvency procedures normally follow).
In addition, HMRC are often a key creditor and are likely to insist on either a formal procedure or payment of 100% of the debt.
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In terms of recording all information this should include:
- A documented external review of the SOA and financial projections. We recommend an external review as all too often the internal assumptions made are too optimistic and lack substance.
- Fully recorded board minutes / records agreeing the strategy moving forward and, crucially, noting the key assumptions made in the SOA and financial projections.
Back to: The Options
Back to: Guide to Business Recovery and the Insolvency Process - Overview
A PDF version of the full 'Guide to Business Resuce and the Insolvency Process' is available to download here.
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