When to use a Voluntary Administration
I explained here in a recent blog that the alternative to placing a company into Liquidation was to use a Voluntary Administration, however, the statistics have shown that “VA’s” have been quite spectacularly unsuccessful in achieving their stated aim of saving a company. It’s not often, but there are particular situations, when I do recommend a VA as a better alternative than a liquidation or some other restructuring technique. I’ve detailed below the ideal situation for a Voluntary Administration.
An ideal company for a VA is one that fits the following description:
- Insolvent or is likely to become insolvent, hence needs some sort of debt restructuring;
- Actively trading;
- Has had some sort of one-off or non-repeatable disaster that has caused the insolvency; hence
- The prospects for a return to profitability and positive cash flow are good, provided the debt burden can be reduced.
At Dissolve, we take a lot of phone calls from directors of companies in financial distress. Those directors will often have read that a VA can fix an insolvent company. Most are diverted off the railway tracks of a VA by my question: “So if I can fix the debt burden, can you see a scenario where the company can trade profitably in the reasonably foreseeable future?” In those cases where I get a “yes” we will normally do a VA through our sister company Restructuring Works (yes, it’s a friendlier name than Dissolve).
So, if you are a director or have a client that is considering a VA please give us a call for free advice. Even if a VA is not the right solution, we’ll be able to find the best fit for the situation.