What is a company voluntary arrangement?
Thursday, 10 March 2011 10:56
A company voluntary arrangement is one of the options available to businesses that are struggling to maintain normal operations – but what exactly is it?
With a company voluntary arrangement, the firm's shareholders make a decision to go into liquidation and wind up the organisation. This usually only happens when all other possibilities for continuing business – such as putting the company up for sale – have been exhausted.
There are two types of company voluntary arrangements: members' voluntary liquidation and creditors' voluntary liquidation.
The former process occurs when the firm is solvent enough for its assets to be liquidated in order to pay off its debts, while the latter takes place when there are not enough assets for debt repayments.
Shareholders must follow a number of rules when beginning either voluntary liquidation procedure.
With members' voluntary liquidation, the majority of the company's directors are required to formally declare its solvency no more than five weeks before a resolution is passed to voluntarily wind up the business.
This declaration needs to be filed at Companies Registry, include a statement of assets and liabilities and say that the firm's directors have looked into its finances and believe all debts plus interest can be repaid within a year.
A general meeting should be held, at which a resolution is declared to voluntarily wind up the business and one or more liquidators are appointed.
Creditors' voluntary liquidation occurs when the firm is insolvent or when the majority of company directors do not make a solvency declaration.
The business is normally required to call a creditors' meeting on the same day as the shareholders' meeting, at which creditors are able to nominate a liquidator.
It is the liquidator who is responsible for using the firm's assets to pay any costs associated with the liquidation, plus any debts owed to creditors.
As the expenses associated with voluntary liquidation can be high, shareholders may want to think carefully about their decision – and perhaps consult a professional for advice – before deciding to proceed.
It is possible for a members' voluntary liquidation process to turn into creditors' voluntary liquidation if it is later found that the firm's assets are not valuable enough to meet all of its debts.
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Finance articles
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The advantages of a company voluntary arrangement
Businesses that are in difficult financial situations may find it beneficial to consider a company voluntary arrangement (CVA), as this can help bring them back into the black.
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Where can I find useful information on placing my business in liquidation?
Are you in need of business rescue? If you are it can be difficult to know where to turn for help – but there are organisations that can provide advice and support.
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Common IVA myths exposed
If debt problems have prompted you to consider individual voluntary arrangements (IVAs) recently, before you do anything else you should take some time to undo a few of the myths surrounding these schemes.
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What is the difference between members' and creditors' voluntary liquidation?
A voluntary liquidation is a process that takes place when a company decides to wind up its affairs, before its assets, property and other reserves are redistributed.
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How does sole trader insolvency differ from companies in the same situation?
Having to apply for sole trader insolvency can be a distressing step but individuals will find themselves better equipped to deal with the situation if they understand the main differences between being declared insolvent as a sole trader and a business going into liquidation.
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