Voluntary Arrangements

Not all businesses in financial trouble are doomed to failure. Some just need time to get their affairs in order. That’s what voluntary arrangements do – it creates a breathing space.

It’s an agreement with creditors that sets out how debts are going to be paid, and over what timescales. The funds to make the payments can come from various sources – selling assets, an injection of cash from another source or future profits. What’s important to the creditors is that they have the confidence they will eventually be paid, and the business knows it can continue to trade.

A voluntary agreement is established in court. It gives protection from any further legal action for non-payment of debts, but creates an obligation to make payments wherever possible.

It is available both to individuals or companies who are insolvent. One of the major benefits is that it allows a business to continue to operate under its own management. This puts it in a good position to weather the storm, although it won’t be easy.

Voluntary arrangements – getting the agreement of creditors

The most significant factor in securing a voluntary arrangement is getting the creditors to agree to it. Unsecured creditors are usually a particular concern, because they stand to lose the most if the business goes into bankruptcy.

However, a well constructed voluntary arrangement proposal to creditors will often persuade them to agree to it. The following need to be in place to ensure acceptance:

  • a viable business
  • a reasonable repayment schedule (neither too ambitious or overly cautious),/
  • a willingness by the management to make the necessary changes and to work hard

Not all the creditors need to accept the arrangement, only a majority, but all will be bound by it.

The importance of planning

Demonstrating that the business is in a fit state to continue, despite having cash flow problems, is essential to successfully establishing a voluntary arrangement. So it’s important that the signs of impending difficulty are picked up as early as possible.

Creditors will be much more understanding to an organisation that recognises it’s in difficulty and is trying to do something about it.

Businesses struggling with paying their suppliers and other liabilities need to accept that they may be insolvent, or at the very least facing significant cash flow problems. They also need to actively consider the next steps to take. It’s too easy to struggle on for a few months, but that will only makes the situation worse. The sooner a business takes actions to stabilise its position and regain control, the better its chances of survival.

Turning a business around isn’t easy, particularly in the current climate. But it isn’t impossible either. Commitment, hard work and the right attitude make a big difference, as does getting the best possible advice from specialists such as Touch Financial.

We’ve got decades of experience supporting a wide range of organisations. We know that while businesses face common problems, each one is dealing with a unique set of circumstances. This means that what works for one will not be ideal for another – there’s no ‘one size fits all’ solution.

At Touch Financial, we operate in partnership with our customers. We take the time to understand your specific issues in order to put together the right solutions. We’re not here for the short-term; our objective is the long-term success of our customers.

If you want to know more about voluntary arrangements or other forms of insolvency actions, give us a call. We’ll give you the time you need in a no-obligation consultation. This ensures that we have the best possible understanding of your immediate concerns, and it will give you the confidence that we really do have the knowledge and experience to help your business.

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