Is Administration Inevitable?

By Rodney Hylton-Potts specialist insolvency lawyer
My manufacturing company that is in serious financial difficulty. To avoid administration we have been advised to put together a restructuring proposal to our investors. There are concerns that the shareholders, who are already disgruntled, will not support it. Does the company have any legal power to compel the shareholders to agree to the proposal if it is in the company’s best interests? If not and they reject it, is administration our only option?
Once a company is insolvent, the interests of creditors override those of shareholders who are generally slow to recognise the facts of life. It is possible by proposing a company voluntary arrangement (CVA) to sideline shareholders. They get a vote on any restructuring but in a shoot-out, if they disagree with the creditors’ vote, the creditors win. This is a powerful tool but you need to line up the votes of your suppliers and other debt providers in advance.
If the reality is that your shareholders have no economic interest in the company, they can be ignored in a CVA. One of the great advantages of the CVA is that you can deal with landlords and other leasing creditors to get them to the table. Secured creditors, such as banks, have no vote unless they are under water, so they are generally supportive. They may even provide fresh cash for the company if the old debt is crippling the company. Time will be short, so contact an experienced CVA insolvency practitioner quickly. Rodney can recommend the best in the business.