Advantages

• Existing management retain control of the business

• Shareholders do not lose their investment

• Normally results in some debt forgiveness

• Repayment spread over a period of time

• Less uncertainty for customers, suppliers and employees than liquidation or administration

• May be used to facilitate a restructuring programme – redundancy costs etc. are normally met by the National Insurance Fund (who rank as a creditor in the arrangement)

• May be used to walk away from onerous property – e.g. expensive leases

• Not all creditors have to agree to it – over 75% of creditors who vote must vote in favour of it.

• Binds all unsecured creditors including HM Revenue and Customs (VAT and PAYE).  Creditors are not able to take further action such as winding up or court action once approved

• Possible to eliminate cross guarantees and protect other members of a group.

• The Insolvency Practitioner is not required to report to the BERR (DTI) on the conduct of the directors

• The effective profit gain from debt forgiveness is tax free under an HM Revenue and Customs Extra Statutory Concession