Your responsibilities as a director
If your company cannot pay its debts when they fall due, or owes more to creditors than the value of the assets owned by the company, then it is likely to be insolvent. As a director, if your company is insolvent, then you have a legal duty to act properly and responsibly and to prioritise the interests of your creditors.
The risks of liquidating the business may include your disqualification from acting as a director of other companies and also your personal reputation as a director, or more worryingly in an extreme case being found personally liable to contribute towards the shortfall in payments to creditors.
If you believe that your business is potentially viable and may have a sound profitable future, but is currently over burdened with old debt and needs some immediate help with cashflow, then a Company Voluntary Arrangement (CVA) might be the best answer. A Company Voluntary Arrangement is also likely to be in the best interests of your creditor, so you will also be protecting yourself and the business.
Director’s conduct is not investigated when you choose a Company Voluntary Arrangement
As a Company Voluntary Arrangement is typically in the best interests of creditors, there is no need to carry out an investigation into the director’s conduct, which is the case with a normal liquidation or administration or where there is a phoenix or Prepack of the business to a new company.
The CVA works to leave the original business intact, free from the unaffordable element of the burden of legacy debt. A Company Voluntary Arrangement poses no risk of being found guilty of wrongful trading, which could lead to disqualification and possible personal liability to contribute towards the debts due to creditors.
During a Company Voluntary Arrangement the current directors can continue to run the business
In a CVA there is no legal obligation to replace the structure and management of your business and therefore the existing directors retain control of the business. However, the CVA can be a good catalyst to make desired changes in order to implement new ideas and to make the necessary changes needed to ensure a positive future for the business.
Prior to pressing forward with a Company Voluntary Arrangement, the directors and management may already have ideas for changes they wish to make, but will anyway need to be committed and determined to learn from past mistakes and work towards a new and improved business model.
What happens to my Personal Guarantees during a Company Voluntary Arrangement?
Under a Company Voluntary Arrangement you are not personally liable for the company’s debts, unless for some reason you have given a personal guarantee. Even if you have provided a guarantee, a CVA will help as you are only liable if the company cannot pay and by continuing in business you will have retained a source of income.
Personal Guarantees are not released as a result of a Company Voluntary Arrangement, but the debt may be paid off under the CVA. At this point there is no reason why the personal guarantees cannot be removed. Although the CVA does not usually result in any debt to the bank being reduced, the debt can normally continue to be serviced by the company and therefore the guarantees are not likely to be called upon.
If you are considering a Company Voluntary Arrangement and would like more information on your responsibilities as a director we offer a free no obligation meeting before any commitment is made. Cashsolv are licenced, regulated and professionally insured to carry out a CVA on your behalf and guarantee that you receive genuine impartial advice as to what is the best course of action for you.
For further information and a balanced view on CVAs see our support pages:
- Company Voluntary Arrangements
- What is a CVA?
- Advantages of a Company Voluntary Arrangement
- Disadvantages of a Company Voluntary Arrangement
- CVA v Prepack or Phoenix Liquidation
- Is a CVA the best option for my business?
- Company Voluntary Arrangements – your questions answered
- Download our PDF Guide to CVAs