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If your business remains viable but is facing operational or financial pressures, corporate restructuring and recovery processes may provide an appropriate route forward. Where cash flow is constrained, debts are increasing, or creditor pressure is intensifying, restructuring offers directors a structured and proactive framework to address these challenges as they arise, rather than spiralling into insolvency.
Most Directors start looking at restructuring where the crops of Insolvency appear, such as mounting tax-pressure, late payments or reliance on short-term borrowing. An early response is vital, and a well-planned Corporate Administration or Company Voluntary Arrangement (“CVA”) could protect the business from creditor pressure via legal moratoriums, preserve jobs and contracts, or reduce and write off debt through formal agreements with creditors.
Ignoring the warning signs can lead to wrongful trading allegations or even Director disqualification measures, so early action is key.
At RSM Gibraltar we can help, we do more than just close Companies, we asses the viability of your Company and explain every available option from more informal rescue plans to acting as your Insolvency Practitioner in Administration.
The right solution depends on the circumstances of the business. We help you assess the available options and choose the route that best supports recovery or an orderly transition. These can be and for more details see below:
- Company Administration
- Company Voluntary Arrangement (“CVA”)
- Administrative Receiverships
Company Administration
When your Company is facing severe financial difficulties, Administration can provide you with a crucial lifeline. It is an Insolvency procedure run for the benefit of all creditors. During Administration a Statutory Moratorium prevents creditors from taking legal action against company assets while a rescue plan is worked out. A licensed Insolvency Practitioner becomes the Administrator and takes temporary control. Their legal duty is to act in your creditors’ best interests.
What will happen to my Company during an Administration?
Once a company enters Administration, it is placed under the day‑to‑day control and management of an Administrator (our licensed Insolvency Practitioners). The Administrator will typically seek to achieve one of the following objectives:
rescuing the company as a going concern; or
selling the business or its assets in order to achieve a better return for creditors than would be available in Liquidation.
To protect the company from creditor action, Administration provides the benefit of a statutory moratorium. This restricts creditors from taking certain enforcement actions against the company and, for example, prevents legal proceedings from being commenced or continued without the consent of the Administrator or the Court.
For businesses experiencing financial distress, understanding the Administration process and obtaining professional advice at an early stage can be critical to achieving a successful outcome. At RSM, we are able to act as Administrators and provide comprehensive support in related matters, drawing on a multidisciplinary team of professionals across Tax, Accounting, and Fiduciary services.
Company Voluntary Arrangement (“CVA”)
As an alternative to Administration if your Company has a fundamentally viable business, but is insolvent, then a CVA might be the correct avenue to take. It is an alternative to Administration or Liquidation, with the Directors remaining in control of the Company throughout the process. Alternatively, it can be used as an exit route to restructure a Company in administration.
The terms of a CVA can be tailored to address the specific financial issues faced by a company, making it a flexible restructuring tool. It can be used to restructure a particular group of creditors, such as landlords or more broadly to compromise or reschedule unsecured debt.
A CVA is often described as a contract between a company and its creditors. The proposal will set out the terms, and if approved the CVA becomes binding on those creditors who are affected by the CVA.
Why might you use a CVA?:
- to reschedule historic unsecured debt to enable payment over a longer period;
- write debts off entirely or reduce the level of historic debt;
- companies in retail, hospitality and leisure may use it to restructure a lease portfolio, or to pay landlords a reduced rent;
- flexibility that other insolvency processes might not allow for;
A CVA will allow the business to continue, preserving jobs and relationships with suppliers who are likely to receive a higher return than if the company were to go into administration or liquidation;
What is a CVA Proposal?
A CVA proposal is a legally binding agreement between a company and its creditors, enabling the business to repay its debts over an agreed period while continuing to trade. The proposal must nominate a qualified Insolvency Practitioner to act as Supervisor, who is responsible for overseeing and administering the CVA.
Once approved, the terms of the CVA are implemented in much the same way as any other commercial contract. If the company successfully fulfils its obligations and creditors receive the payments promised under the arrangement, the CVA will be concluded and deemed successful.
If, however, the CVA is unsuccessful (for example, where the company fails to maintain the agreed contributions) the proposal will include provisions governing termination. In such circumstances, it is likely that the company will proceed into a subsequent formal insolvency process.
No matter how dire your company’s financial situation may seem, there are options available to help it recover. At RSM our insolvency practitioners can negotiate with creditors to reach an arrangement regarding debts, as well as use procedures such as administration to save your business.
Administrative Receiverships
When a business defaults on its loan obligations, an Administrative Receiver (the “AR”) may be appointed to take control of the company’s assets and realise them for the benefit of the secured creditor. At RSM Gibraltar, our licensed Insolvency Practitioners can act as Administrative Receivers in accordance with the terms of the underlying security or debenture.
Why would a Creditor appoint an AR?
- An AR may be appointed for a number of reasons, including:
- the AR acts solely in the interests of the appointing creditor;
- this increases the likelihood of the creditor recovering its debt in full;
- the appointment does not require a court application, allowing for greater speed and flexibility; and
- the process is generally straightforward and creditor‑driven.
Following their appointment, the AR assumes control of the company. Their primary objective is to recover as much of the appointing creditor’s debt as possible. To achieve this, the AR has wide‑ranging statutory and contractual powers, which may include:
- selling the business as a going concern;
- selling some or all the company’s assets;
- dismissing the company’s directors and/or employees; and
- continuing to trade the business where this maximises realisations
Once the AR has completed the recovery of funds and concluded any investigation into the directors’ conduct, the receivership will come to an end. In most cases, control of the company is not returned to the directors, as the company will typically have been sold or placed into liquidation.
In rare circumstances, however, control may revert to the directors where a Company Voluntary Arrangement (“CVA”) has been successfully implemented.
If you are a business owner who has defaulted under the terms of a debenture, it is crucial to seek professional advice as early as possible. Our team can assist you in considering appropriate formal insolvency or restructuring options, such as a CVA or Administration, to help manage creditor pressure and, where possible, avoid closure.