Images Magazine Digital Edition February 2019

BUSINESS DEVELOPMENT www.images-magazine.com 22 images FEBRUARY 2019 ■ A BBC investigation in January found that some retailers are illegally charging for card payments. Personal credit and debit card surcharges were banned in January 2018; surcharges are still allowed for corporate credit cards. www.bbc.co.uk ■ Amazon has written to traders using its online marketplace in the UK to warn them that a ‘no deal‘ Brexit may lead to cross-border trade being temporarily prevented. The company suggested sending stock to its European fulfilment centres by 17 March to try to mitigate any problems. www.amazon.co.uk What is the best option for a struggling business – a CVA or administration? I nsolvency procedures such as a company voluntary arrangement (CVA) and administration can be used to rescue a failing business, but they are only appropriate where the underlying business model is viable and the company could realistically become profitable once again. CVA A CVA is an insolvency procedure that allows a struggling business to repay all or part of its existing debts in monthly instalments over a period of up to five years. As part of the arrangement, the business, with the help of an insolvency practitioner, must create a proposal that sets out exactly how much it can afford to repay every month. The creditors then vote on whether or not to accept the proposal. A CVA usually leads to the repayment of more of the business’s debts than administration and liquidation, and allows the directors to retain control of the business and continue trading throughout. Administration The company directors lose control of the company and an insolvency practitioner is appointed to act as the administrator and turn the business around. With changes to the business model and the sale of non-essential assets, the administrator may be able to bring about a recovery and return the business to the control of the directors. However, if the business is past the point of recovery, the administrator may close the business or sell it as a going concern. Cost CVA The fees for a CVA are not unsubstantial. However, as they are included in the monthly CVA repayments, they can often be more easily absorbed. Administration The costs of administration tend to be between five to 10 times more than a CVA. The administrator controls business bank accounts and takes money as and when it’s needed (subject to approval from the creditors). Time period CVA A CVA can last between one and five years; typically it will be in place for the full five years. Administration Administration only lasts for a period of up to one year, although that period can be extended with the approval of the creditors and/or the court in complex cases. The return for creditors CVA A CVA is not a free pass to write off business debts. You will have to repay as much money as your business can reasonably afford. That will have to be greater than the amount creditors would receive through liquidation. Administration The return creditors are likely to receive will depend on the course of action taken by the administrator. However, the creditors will generally receive less money than in a CVA. The negative impact CVA A business will have to make the monthly CVA payments for a period of up to five years, so it’s essential it can do so without affecting its ability to trade. The business will also have to pay any debts it accrues while the CVA is in place. This can be quite tying for many businesses and will inevitably restrict growth. If the monthly CVA payments are not made then the business could be closed. Administration This is a much more public process and suppliers, customers and employees may lose faith in the business and go elsewhere. If it is possible to save the business then there will be a lot of rebuilding to do. The best course of action for your business depends on the particular circumstances you find yourself in. However, it’s safe to say that both of these courses of action are significantly better than burying your head in the sand. Expert advice on the business of running a garment decoration company Q&A Mike Smith is the senior director of Company Debt and a business insolvency expert with 40 years’ experience helping small businesses manage and potentially overcome problems with debt. www.companydebt.com