If you own a business which struggling, but is still potentially viable, has directors who are committed to want the business to continue to trade, and has the potential to be profitable again, a Company Voluntary Arrangement (CVA) could be the lifeline you are looking for.
A Company Voluntary Arrangement is a legally binding agreement with your creditors, and a practical way to protect yourself and your business from legal action. It is an effective way of getting relief from the pressures of debt, so you can continue to trade and lower your monthly outgoings to your creditors.
It can provide the vital breathing space to allow a business to recover, grow and prosper. In simple terms, a CVA agreement will allow an insolvent company to pay back all or part of existing debts out of future profits. The CVA proposal terms will outline the set period of the Company Voluntary Arrangement during which the company will pay back a percentage of debt to creditors. The balance of the outstanding debt, which is unaffordable, is written off.
Is my company suitable for a Company Voluntary Arrangement (CVA)?
There are many things to consider with a Company Voluntary Arrangement proposal, but before you can determine if it is the best option for you, it is important to establish if it is suitable for your business. Here are some of the key points that will assist you in determining the suitability:
- The Company must be insolvent or contingently (potentially) insolvent. ‘Insolvent’ is when you cannot pay all your debts as they fall due, or in full.
- All parties need to be confident that the business has potential to recover and has a realistic prospect of a financially viable future.
- Supporting documentation such as historical positive trading results or a sound plan showing how the business will be profitable in the future is very helpful, as is being able to implement a good accounting and reporting system to monitor future trading performance. Cashflow is always very important. A CVA can help relieve cashflow problems, as existing debt is frozen but you retain future income.
What are the benefits of a Company Voluntary Arrangement (CVA)?
Whilst we have mentioned most of the benefits below, each individual case is different depending upon the business and your personal circumstances:
- Improves a company’s cash flow immediately
- Unaffordable debt, usually up to 75%, can be written off
- Requires only one monthly payment to cover all existing creditors. Payments are made in affordable instalments over a period of up to five years
- Providing you stick to the Company Voluntary Arrangement, you are protected from creditor legal action
- Stops pressure from HMRC and risk of seizing of assets, winding up petition etc. Even if a winding up petition has been issued the CVA process can stop the winding up petition by securing court adjournments
- Can achieve significant debt relief, allowing you to focus on making business a success
- Sizeable cost savings in comparison to alternative debt restructuring or borrowing costs
- The termination of leases or employment contracts are possible using a Company Voluntary Arrangement, with only a proportion of the cost being paid over the term of the arrangement
- The directors still maintain control of the business, with existing shareholders
- Potential to renegotiate or extend CVA if the cash flow has not improved
- A CVA can be kept confidential