Week we began looking at the various options for limited companies who might be feeling financial pressure. You can recap these blogs here, ‘Business Health Check’ and ‘Turnaround Advice’.

But what if your business health check discovers that your company might require a formal insolvency procedure? You can get an overview of which procedure might suit your company best in our upcoming blog, ‘What is the best option for my company?’ so look out for that. One of the options that might be available to you is a Company Voluntary Arrangement or CVA.

But what is a CVA?

Well simply put it is a rescue tool, an insolvency procedure that allows a financially distressed company to reach an agreement with its creditors about paying off all or part of its debts over an agreed period of time.

It is based on the principle or preserving the company and enabling it to continue trading so that it can rebuild turnover and profit, paying back what it can afford over the agreed period, (This is usually 5 years but more on that later).

The directors will remain in control of the company giving it the greatest possible chance of survival. A CVA can be used as an excellent and effective tool to solve a company’s debts and once the arrangement has been completed, any outstanding debt not paid will be written off. All costs of a CVA are more often than not met from the contributions made to creditors each month meaning that there is no extra financial burden made on the company.

When might a CVA be appropriate over other forms of turnaround and formal insolvency?

First and foremost a company must be considered insolvent or already be in administration to be eligible to enter into a Company Voluntary Arrangement. To see if your company may be considered insolvent take a look at our blog post ‘Is My Company Insolvent?’.
Where it may be possible for a company to trade its way out of debt, or continue in business if its debts can be reduced, then a CVA is probably something that you will want to consider.
A CVA may be appropriate where:

  • A company wants to avoid liquidation
  • A company that knows it can be successful and profitable in the future but needs a bit of time
  • A company needs to restructure
  • A profitable company that has experienced late payers or bad debts which have affected the short-term cashflow of the company
  • A company has tried to negotiate new terms with their creditors themselves but have failed to reach a compromise
  • Creditor pressure is preventing the company from moving forward

What are the main advantages of a Company Voluntary Arrangement?

CVA’s can have a number of benefits and advantages for directors and shareholders of companies facing overwhelming debt problems.

  • It will stop pressure from creditors, including HM revenue & Customs
  • It will quickly improve company cashflow
  • There is only one monthly payment to make that the company can afford
  • Unsecured debt that the company cannot afford to pay will be written off
  • All interest charges on unsecured debts are frozen
  • CVA’s are not advertised locally or in the London Gazette
  • Directors and shareholders will retain supervised control of the company
  • Company creditors are legally bound by the terms of the CVA
  • Your company will be protected from any further court or bailiff action
  • Lower costs that those seen in Administration and Compulsory Liquidation

When you enter into a CVA with an Insolvency Practitioner they will become your point of contact for the company’s creditors, you would not have to deal with any more harassing phone calls or threatening letters, your insolvency practitioner will sort those out for you.

What next?

Read our next blog on the CVA Process.
If you think your company might qualify for a CVA or you’d like some advice on this or any other options then remember that Focus Insolvency Group are here to offer free and impartial advice. Every situation is different and so it’s best to seek advice before making any decisions, you can get full and in-depth advice that best matches your circumstances and those of your business.

If you have any comments or questions please leave them in the comments sections below and we’ll endeavour to answer them as soon as possible or just give us a call.