DIY accounting software can have a major pitfall – here’s how to avoid it
The DIY Kiwi mindset and ease of use that comes with accounting software has led to many business owners...
Companies have a number of options in these circumstances. One is a formal creditor compromise under the Companies Act 1993, through which a company can restructure its debts and obligations.
The purpose of a creditor compromise is to support companies that have a viable future, and to provide a better financial result to creditors and shareholders than they would otherwise receive in a liquidation or receivership. We have experts at Baker Tilly Staples Rodway who can advise you on the process.
A creditor compromise is a prescribed process under the Act by which a company can enter into an arrangement with everyone it owes money to. Commonly, it involves full and final settlement payments, of less than the full amount owed, over an extended period, or the use of monies that would not be available to creditors in a liquidation. However, there are many options available.
The process initially involves a proposal being issued in a prescribed format for creditors to vote upon at a meeting. The proposed compromise takes effect and is binding if it is approved by the majority (50% by number and 75% by value). Approval is typically by class of affected creditor (eg. unsecured).
Creditors prefer to support a proposal if it means that they will receive a better financial result than they would in a liquidation or receivership. They also prefer to support companies that they can do business with in the future.
A company does not need to involve the Court in the process. It can, however, involve it where (for example) it is struggling to obtain the approval of a necessary creditor.
The proposed compromise can affect security rights (including personal guarantees) held by a creditor of the company if they agree.
It is particularly useful in the following circumstances:
In certain cases, there is a need for an independent party to take control of the company. This may be due to, for example, overwhelming financial or legal pressure.
Voluntary administration is a further option under the Companies Act 1993, and is an alternative to liquidation and receivership. It enables the restructure of a company’s debts and obligations, and provides a further form of creditor compromise known as a deed of company arrangement (“DOCA”). Control of the company can then revert back to its directors.
The key benefits of a voluntary administration include:
For further information on voluntary administration and deeds of company arrangement please contact one of our experts at Baker Tilly Staples Rodway.
Based upon our experience, companies are likely to face several challenges when putting forward a compromise proposal. We can help maximise its chance of success by:
For further information please contact one of our experts at Baker Tilly Staples Rodway.
DISCLAIMER No liability is assumed by Baker Tilly Staples Rodway for any losses suffered by any person relying directly or indirectly upon any article within this website. It is recommended that you consult your advisor before acting on this information.
Cookies help us understand how you use our website, so we can serve up the right information here and in our other marketing.