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Seven reasons a CVA is a good insolvency procedure

Companies can find themselves in financial difficulties for all kinds of reasons. If those problems prove insurmountable, the company may find itself facing liquidation – meaning the directors lose out on all the hard work they’ve invested over the years. However, there is an alternative: a Company Voluntary Arrangement (CVA).

What is a CVA?

A CVA is a procedure that can be implemented when a company cannot meet its financial obligations but clearly has a potential future. It gives the company breathing space from legal action while it aims to restructure its finances, which will usually involve proposing a payment plan under which creditors get some proportion of what they’re owed.

Creditors then have a minimum of 17 days to decide how to vote on the proposal, and if more than 75% of creditors (in terms of value) assent then the CVA is approved. This can be a very advantageous solution for the company in question, for seven reasons:

1 It can continue to trade

With liquidation, the company effectively disappears, taking its assets and liabilities with it. With a CVA, the company can keep moving forward as a going concern.

2 The directors stay in control

Unlike other insolvency options, control of the company is not handed over to a third party whose priorities may be very different from the directors’.

3 The debt can be reduced

Since creditors agree to receiving a certain proportion of what they are owed, significant amounts of debt can be written off. This is also good news for unsecured creditors, who could risk receiving nothing if the business goes into liquidation.

4 The business can be restructured

If there are structural issues causing problems for the company, they can be addressed whilst the CVA is in place. An experienced turnaround practitioner will work with the directors to identify underlying problems, trim away any fat and make the business leaner and more effective.

5 The company can keep its customers and contracts

If the business folds and the directors have to start from scratch, there’s a good chance customers will find alternate suppliers in the meantime. Similarly, having taken a substantial loss, the company’s own suppliers may be unwilling to do future business. With a CVA, everything can effectively continue as normal.

6 Tax losses can be retained

If the company has accumulated tax losses, these can be retained for three years and used to offset future corporation tax. Once the business enters administration, the clock is effectively reset to zero.

7 Additional funding can be sought

The breathing space a CVA buys you can allow you to obtain an injection of funds that will make the company viable. This could come from a loan, the sale of a major asset or an injection of personal capital.

Make sure you talk to Cashsolv

Cashsolv are the specialists in CVAs and small business finance. If you find yourself facing liquidation, we may be able to provide the finance you need – and make a CVA work for you.

Carl Faulds By Google+ |
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