What does it typically involve?
This is a process that can leave the directors of the company in control and removes the financial pressure.
This process allows a company under severe financial pressure from its creditors to relieve that pressure and allow the directors to concentrate on profitability.
A proposal is prepared that explains the problems that the company has experienced and the measures taken by the directors to alleviate those problems. The proposal also includes details of the current financial circumstances of the company and a cash flow showing how the new measures will return the company to profitability.
The proposal is sent to creditors for their consideration. Creditors may request a meeting where they can ask questions to satisfy themselves as to the viability of the proposals. They can also suggest modifications that may improve the outcome for them or may impose additional conditions in the arrangement. If the proposals are approved, all creditors are bound by the decision and cannot take any further action against that company in respect of their debt.
The existing management continues to manage the business. The insolvency practitioner oversees the implementation of the proposal, acting as supervisor of the arrangement.
As part of the proposal, the creditors are effectively put on hold. The directors can either continue to operate the company under the terms set out in the proposal or there can be an orderly disposal of the company’s assets. Where trade continues, a proportion of future profits are usually paid into a ‘scheme fund’ with a view to making distributions to creditors during the arrangement. Upon completion of the arrangement, the company can continue to operate and creditors will have received at least a partial payment in respect of their debt, but will benefit from the on-going trade with the company.
We must stress that this is a brief overview and is not intended to allow a director to self-diagnose. We recommend that if you are under threat or considering entering into an arrangement, you contact us for a free consultation to ensure that you take the appropriate action.