How To Go About Business Debt Consolidation
Consumers are not the only ones who may find themselves in debt. A business can amass a huge amount of debt in a short time, especially during a difficult economic climate.
When they find themselves in need of business debt consolidation, UK companies have several options.
Both informal and formal avenues exist to resolve business debt issues. If business owners have questions when pursuing any of these, they should find an expert who can provide debt consolidation advice.
A Company Voluntary Arrangement, or CVA, is a business debt consolidation solution for limited companies. This procedure closely corresponds with the Individual Voluntary Arrangement (IVA) for personal insolvency.
A deal is made between the business and its creditors whereby the business is provided with extra time to repay debts and may have a portion of its debts written off by one or more creditors.
Creditors are not obligated to accept a smaller payoff but they often do because they believe they will probably receive more money this way than if the business were forced into liquidation.
The insolvency practitioner administering the CVA is referred to as a supervisor. However, the arrangement itself is between the company and creditors directly.
The company remains under existing management and the CVA supervisor merely serves as a conduit and overseer of business debt consolidation.
In order for a CVA to go into effect, creditors representing 75 percent of the value of the debt must approve of it.
Is This Solution Right For Your Company?
CVAs are most appropriate for companies whose financial difficulties stem from several isolated incidents considered one-time occurrences.
By adhering to this business debt consolidation arrangement, directors avoid company liquidation and bankruptcy and are able to maintain control and continue trading.
Up to 75 percent of unsecured debt can be eliminated by a CVA and the company is guaranteed to be debt-free within 60 months. During the CVA period, interest is frozen and no future interest charges are imposed.
A Creditor Voluntary Liquidation (CVL) is an alternative type of business debt consolidation counseling agencies may recommend. Liquidation is the process of identifying and distributing company assets to the parties that are legally entitled to them.
After liquidation takes place, the company is dissolved. A CVL is initiated by a resolution passed by the company shareholders. This differs from a winding up order from a court made at the request of an unpaid creditor.
The CVL business debt consolidation arrangement is considered voluntary, thus its name. Company directors are unable to make the Statutory Declaration of Solvency that is necessary for a Member’s Voluntary Liquidation. At this point, no debt consolidation loan in the world will help the business.
The entity has recognized that it is insolvent and will be unable to repay its debts in full.
The Last Thing Most Companies Want To Hear
When business directors seek debt consolidation advice, the last thing they want to hear is that a CVL should be pursued. This is the death knell for the business and means that closure is imminent. Unfortunately, the economic recession has forced many UK companies into a CVL.
When the market for products and services declines and even a restructuring will not make the company viable, a liquidator is nominated to lead the CVL business debt consolidation process.
The liquidator investigates the insolvency claims of the directors and calls a meeting of the creditors.
These creditors formally appoint the liquidator and may form a committee to monitor the activities of this individual.
Business debt consolidation duties of the liquidator include converting business assets to cash, determining how much the company owes, investigating and reporting on the conduct of company officers, and making payments to creditors.