Updated: 8th January 2020
An informal insolvency arrangement involves negotiating directly with your creditors to come to some agreement over how you will pay back the money you owe. An agreement of this type can be entered into relatively simply, so long as your creditor co-operative, and will not be legally binding on any party.
When creditor pressures are becoming too much to handle and debt is continually piling up, a suitable solution must be sought as soon as possible to minimise the threat of liquidation/bankruptcy. However, attempting to negotiate with creditors independently probably will not yield positive results as consistently as having a formal proposal drawn up and submitted on your behalf by a professional insolvency practitioner. Even so, if the debt is nominal and is only owed to a single party, it may be worth your while to pursue an informal arrangement. Just keep in mind that there are risks and disadvantages associated with any kind of informal procedure as they are often not legally binding.
Since an informal agreement is not documented in writing and involves no binding contracts, the creditor is not legally obligated to uphold their end of the bargain.
In other words, they can back out at any time and suddenly petition for your company to be liquidated even after agreeing to an arrangement you previously proposed. Such unofficial negotiations leave your company completely unprotected, as there are unlikely to be any legally binding terms and conditions that the party must abide by.
In addition, the chances of having a viable arrangement that is not independently proposed are much lower than the chances of creditors accepting a proposal written note and proposed by a licensed insolvency practitioner.
A formal arrangement gives you the leverage needed to defend yourself from legal action if a lending party decides to petition the court. Once the agreement is made, as long as you keep to the terms there will be no further issues between you and the creditor.
Insolvency practitioners also know how to communicate and negotiate financial terms more efficiently than the average business owner or director, and they have the credentials needed to show that they’re capable of devising a feasible workaround that is mutually beneficial to both the insolvent company and their creditors. For these reasons, formally drafted proposals tend to result in successful arrangements more often than informal proposals.
Instead of pursuing an informal arrangement with creditors through independent negotiations, it may be more advantageous to seek the assistance of a turnaround specialist to formulate and propose a viable repayment adjustment plan.
A company voluntary arrangement, or CVA, will protect your company from creditor pressures and legal actions for as long as you’re able to comply with the terms of the agreement. This means you’ll no longer have to worry about the possibility of liquidation, receivership, or any other insolvency procedure being taken against your company. Furthermore, the terms of the CVA will typically allow for lower monthly payments, and the length of the repayments are usually extended to allow sufficient leniency.
If you’ve been thinking about negotiating an informal arrangement with your creditors, or are looking for a more reliable way to obtain new terms on a loan, call us today on 0800 644 6080 to participate in a free consultation.
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