First things first, what is a Company Voluntary Arrangement? Known as a CVA, this is a legally binding agreement which enables a company to freeze all unsecured debts and repay them over a period of time with an achievable full and final payment from the future trading profits of the company.
Who can make a CVA proposal?
Sometimes, businesses that have been profitable in the past suffer from a lost contract or bad debt, but still remain viable. If this sounds familiar, a CVA can be a great way for such a company to get on the road to recovery. If you are the director of the company and it is not in liquidation or subject to administration, you are free to make a CVA proposal.
How do they work?
A CVA proposal usually involves the delayed or reduced payment of debt, capital restructuring or an orderly disposal of assets within an agreed time period. Creditors will usually agree to support a CVA when shown proof that the outcome will be more beneficial than if the company was liquidated and the assets sold.
What are the benefits?
A company voluntary arrangement is advantageous to a debt-laden business for a number of reasons:
- You stay in control. While the scheme itself is under the control of a Licenses Insolvency Practitioner, the business continues to trade under the control of its directors. There are no investigations into the company’s affairs or the conduct of its directors, and customers will most likely be unaware of the CVA, so business can run as normally as possible.
- Effective financial management. A CVA cuts costs fast, allowing you to end employment contracts, leases and supply contracts with no cash cost. Cash flow will undergo a rapid improvement and a substantial level of your company’s debts could be written off. The amount you do have to pay back is paid in instalments over a period of up to five years.
- Protection from creditors. While the proposals are being organised and put into effect, companies are shielded from pressure from tax, VAT and PAYE. A moratorium is available for smaller companies, which gives them breathing space in which to implement a CVA safe from the threat of proceedings from creditors.