by Frank Farrugia

Voluntary Administration, when used as a tool for a formal restructure can have many advantages, including giving the Company a breathing space from disputing directors or its creditors while trying to ensure the best possible return via a pari passu distribution to eligible creditors. The VA process can also facilitate a rehabilitation of a financially distressed company which has a viable business.

Unfortunately, there are many businesses which need a formal restructure and turnaround but leave it too late. Generally the insolvency practitioner has been called in because they are in significant financial difficulty and on the verge of collapse.

This, I believe, is why there is such a stigma attached to the word “restructure”, when actually it could be seen as a positive, agile and forward-looking initiative.

In a fast-changing economic world it does not take long before performance, sales and revenue start to drop, supplier prices perhaps start to rise, debtors stop or delay payments and before businesses know it they are facing a cash flow crisis.

In fact, calling in a restructuring adviser early when things are going ok means a business has access to an objective outsider with the knowledge and expertise to assess their business model and processes and suggest improvements. This will help a business to remain prepared for whatever the future may bring and to plan ahead for the investment they may need to make to ensure continuous positive cash flow.

In recent times, there has been an increase in the prevalence of pre-insolvency advisors selling their services to directors of businesses in desperate times, such as those who have received legal demands etc. It is important that directors understand who they are interacting with and most importantly they should involve their key advisors, being the company’s external accountant and lawyer. Questions a director should ask are: Are you a qualified accountant? Who are the liquidators which will administer the external administration? What are the costs involved? What is my personal exposure?

Whether restructuring, turnaround, change or transformation it should be seen as a positive initiative when you are in the hands of suitably qualified professionals.

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