The remedies available to companies experiencing difficulty rangeers and accountants to the computer sector. from bona fide turnaround and reconstruction to straightforward liquidation. But what is paraded by certain unscrupulous, unlicensed and unregulated so-called company doctors as a low-cost reconstruction is often simply a euphemism for a bent fix-it. Despite their attraction to directors, these maverick agreements usually end in tears for all concerned.
The Company Voluntary Arrangement (CVA) was introduced in 1986. It enables a company to freeze its liabilities - that is, the creditors - and allow it to continue to trade. The company makes proposals to its creditors - a key aspect is often the payment of regular contributions usually over a few years. The CVA allows the business to re-focus its strategy and pursue the higher margin, so often elusive within the computer sector. The directors can remain fully in charge of the company and its business.
In a successful CVA, the company - in its legal form - and the business - without which the company ultimately cannot exist as a solvent trading concern - both survive. Suppliers stand as unsecured creditors for their proven claim in the CVA, which is frozen at the beginning of the CVA, and they will receive a dividend, or payment in full, over the period of the CVA.
The company's proposals can take a myriad of forms. They can be as versatile and wide-ranging or as limited as the company wishes. But it is up to the creditors to decide whether the proposals are acceptable. They need to be approved by 75 per cent of creditors voting at the creditors' meeting.
Suppliers tend to view most CVA proposals with a clear head. They accept that in the real world, the business of the company could be nothing more than the intellectual property in the minds of a team of people. One way or another, therefore, a business could be - and often is - transferred.
In these cases, the directors have effectively bought the business from themselves at no cost and they have agreed to pay the creditors from future profit - it's a buy now, pay later arrangement. But in the end, whether contributions come from the company itself or from a phoenix organisation, there needs to be surplus cashflow. Without this, contributions are simply not tenable. In a good CVA, suppliers will agree to continue to supply albeit on different credit terms.
Credit managers are intelligent professionals. They not only view a company's proposals critically but look beyond to the integrity of the management. If properly constituted, a good CVA should provide a continuing outlet for product for suppliers.
Suppliers will not make demands which are clearly unattainable. For example, there is little point in demanding a regular contribution at a higher level than you can afford.
Dealers, Vars and others need to understand that financial difficulties do not necessarily signal the imminent arrival of the undertakers. But resorting to tricky manoeuvres will destroy any residue of goodwill that may have existed between the dealer and supplier, and a rapid decline in goodwill with suppliers.
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