Article - Company

Company Voluntary Arrangements: Small & Medium Sized Companies

I have a small company which has short term cash flow problems.  The company needs its creditors to accept some delay in receiving payment.  Is there anything that can be done?

Whilst you are liable to pay all creditors within their agreed credit terms, if your underlying business is sound, you should consider reaching an arrangement with your creditors where they are paid less than they are owed, but the amount paid is more than those creditors would expect if your company was wound up.

The Insolvency Act 2000 introduced a mechanism for a company to obtain a moratorium to enable it to put proposals for a company voluntary arrangement to its creditors.  The effect of the moratorium is to prevent action being taken against the company by any of its creditors whilst moratorium is in force.  In order to obtain the moratorium you must file at Court a copy of the proposals for the company voluntary arrangement, a statement of affairs of the company, a statement that the company is eligible and that the proposed nominee has confirmed the proposal has a reasonable prospect of being approved and implemented.  A moratorium will come into effect after these documents have been filed and last for 28 days, although it may be extended for a further 2 month period. 

During the moratorium, the company continues under your managerial control and can dispose of assets in the ordinary course of business.

The Insolvency Act 2000 provided that moratoriums were only available for 'small companies'.  In order to be a small company, you have to satisfy at least two of the following requirements:-

  1. Your annual turnover does not exceed 2.8 million;

  2. Your balance sheet total does not exceed 1.4 million; and

  3. You have no more than 50 employees.

On 30 January 2004 new thresholds for small companies came into force.  The revised small company thresholds which apply to any finding made on or after 30 January 2004 are as follows:-

  1. Your annual turnover must not exceed 5.6 million;

  2. Your balance sheet total must not exceed 2.8 million.

The threshold of not more than 50 employees remains unchanged.

Accordingly, if your company is within the new thresholds for small companies you will be able to obtain the benefit of a moratorium whilst putting proposals to your creditors for a voluntary arrangement.

If you are thinking about going down this road, you should obtain the advice of an insolvency practitioner before doing so.

Article First Published: 7 March 2004

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