Are Informal Company Creditors Arrangements Worth Your Time?

An informal insolvency arrangement involves direct negotiation with creditors to reach an agreement on repaying owed money. It can be relatively simple if your creditor cooperates, but it won’t be legally binding.

When creditor pressures and mounting debt become overwhelming, seeking a solution promptly is crucial to reduce the risk of liquidation or bankruptcy. Negotiating independently may not be as effective as having a formal proposal crafted and submitted by a licensed insolvency practitioner. Yet, for nominal debts owed to a single party, pursuing an informal arrangement might be worth considering. Just be aware of the risks and disadvantages, as informal procedures are often not legally binding.


Exploring the Risks of an Informal Company Arrangement

An informal agreement, lacking written documentation and binding contracts, means creditors are not legally bound to honor the agreement. They can withdraw at any time and unexpectedly petition for your company’s liquidation, even after agreeing to a prior arrangement.

Unofficial negotiations leave your company vulnerable, lacking legally binding terms and conditions for the party to adhere to. Moreover, the likelihood of a successful arrangement is lower without a proposal independently drafted and presented by a licensed insolvency practitioner.


The Safety and Effectiveness of a Formal Arrangement

A formal arrangement provides the leverage to protect against legal action if a lending party moves to petition the court. Once the agreement is in place, adhering to the terms ensures a smooth relationship between you and the creditor.

Insolvency practitioners excel in communicating and negotiating financial terms more effectively than the average business owner or director. Their credentials demonstrate their capability to devise a viable solution beneficial to both the insolvent company and its creditors. Consequently, formally drafted proposals tend to lead to successful arrangements more frequently than informal ones.


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Consider a Company Voluntary Arrangement (CVA) Alternatively

Instead of independently negotiating an informal arrangement with creditors, it may be more beneficial to enlist the help of a turnaround specialist to devise and propose a viable repayment adjustment plan.

Opting for a Company Voluntary Arrangement (CVA) shields your company from creditor pressures and legal actions, as long as you comply with the agreed terms. This eliminates concerns about liquidation, receivership, or other insolvency procedures. Additionally, CVAs often entail lower monthly payments with extended repayment periods for flexibility.

If you’re considering informal negotiations with creditors or seeking a more reliable way to renegotiate loan terms, call us today for a free consultation.

Senior Partner at Vanguard Insolvency Practitioners | Website | + posts

I am an insolvency professional with a distinguished career specialising in commercial insolvency, adeptly navigating Creditors Voluntary Liquidation, Company Voluntary Arrangements, and Company Administrations. With a comprehensive understanding of insolvency laws and an unwavering commitment to ethical practices.