“Creditors think Company Voluntary Arrangements don’t work”
It is true that a badly thought through Company Voluntary Arrangement, or a CVA for companies that are fundamentally flawed don’t work. However, if the time is taken to assess the viability of the company, and creditors are presented with a sensibly drafted proposal, a CVA will work and is often a much better outcome for creditors.
In our experience, in circumstances where a well prepared proposal is agreed by creditors for a genuinely viable business, the majority do succeed and creditors receive a better outcome than if the company had ceased trading and been placed into liquidation. We are successful in getting almost all proposals accepted by creditors, because we take the time to ensure each are appropriate for the circumstances.
“Our creditors will not continue to supply us”
Actually turn that statement around and ask why wouldn’t they? Like you, suppliers need customers to maintain their level of turnover and more now than ever the customer is king. A well drafted Company Voluntary Arrangement proposal will explain to them why the company is proposing a CVA, what they are likely to receive from the arrangement and how the business is able to make profits in the future. Importantly they will see that they can benefit by being one of its suppliers.
It is important to engage with key suppliers at an early stage, communication makes a massive difference to the relationship. Some suppliers may not offer you the credit terms that you enjoyed previously, but once the trust is built back up, our experience is that the credit offered increases. In the meantime, if you have frozen payment of the old date, you will have access to cash from your customers to pay your suppliers for new goods on a pro forma basis.
Don’t lose sight of the fact that the suppliers need the company to survive, to ensure the Company Voluntary Arrangement delivers the return back to them as creditors and therefore it is in their interests to support the ongoing business.
“HMRC do not like voluntary arrangements”
HMRC consider Company Voluntary Arrangement proposals centrally in a specialist unit and they do have a standard set of requirements that they expect to see in the proposals, but they do also consider the proposal on its merits. As long as the proposal can demonstrate that the business is viable going forward and offers a significantly better return to creditors than in liquidation they are likely to support the proposal.
There are two additional key factors to consider in relation to HMRC’s support.
- Is the company up to date with its compliance, ie filing its tax returns, and will it continue to do so for the life of the CVA?
- Will the company keep up to date with its future tax payments?
As long as the company does not fall foul of these two points above and complies with the terms of the Company Voluntary Arrangement, HMRC typically support voluntary arrangements.
Don’t rely on the advice from the man in the pub, talk to a trusted expert for the facts.
Contrary to the myths, our experience is that Voluntary Arrangements do work and creditors do support them if the business is viable and the proposals themselves are sensible.
Part 1 of 2 - see part two for more information on how stakeholders view Company Voluntary Arrangements.
For further information, download our Guide to the CVA process or view our relevant pages:
- Company Voluntary Arrangement (CVA)
- What is a CVA?
- Advantages of a Company Voluntary Arrangement
- Disadvantages of a Company Voluntary Arrangement
- CVA v Prepack or Phoenix Liquidation
- How a CVA affects directors
- Can a CVA overcome landlord's inflexibility?
- Important points to consider when applying for a CVA
- Case study: CVA tackles a Winding Up Petition
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Company Voluntary Arrangement FAQs
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