What is a Company Voluntary Arrangement?
A Company Voluntary Arrangement (CVA) is essentially a payment plan agreed between an insolvent company and its creditors for payment of all or part of its debts over a period of time.
A CVA is a legal agreement and it can help to re-establish trust between a company and its creditors, allow the company to continue trading, provide a realistic and achievable solution to a company’s debt problems and prevent the company from going in to liquidation.
How to set up a Company Voluntary Arrangement
If a company has become insolvent but has the potential and the cash flow to pay back all or part of its debts over time, then a Company Voluntary Arrangement can be a fantastic insolvency rescue solution.
Firstly, a qualified insolvency practitioner is appointed. The insolvency practitioner carries out a review of the company, its assets and its operations, determines its potential cash flow and whether a Company Voluntary Arrangement would be a realistic solution to the company’s insolvency issues.
The insolvency practitioner will then draft a unique proposal for the company and its creditors. The arrangement will typically involve the company paying back a percentage of their debts over an extended period of time, with monthly payments over a number of years. There is no ‘one size fits all’ solution, but the insolvency practitioner will draft an agreement based on your business circumstances and present it to your creditors for their acceptance.
Not all companies can go down the route of a Company Voluntary Arrangement with their creditors. However, when it is possible, a CVA can give a company that is struggling with its debts the opportunity to continue operating, improve cash flow, repay a large part of its debts over time, and become a viable business once again.
The Advantages of a Company Voluntary Arrangement
If a Company Voluntary Arrangement can be agreed, it can have huge benefits both to the company and its creditors. A CVA can offer a company an achievable solution to its debt problems and give it the opportunity to become a viable business once again. CVAs also have benefits to creditors, as they present a chance for creditors to claim back the money they are owed over a period of time. They may not get as much back if the company were simply to liquidate and sell off assets.
Also, Company Voluntary Arrangements can sometimes allow companies to write off a percentage of their debts to creditors and improve their cash-flow, making trading easier and allowing the opportunity to become truly viable again..
CVAs also provide an alternative to legal action against the company, which could result in the closing of the company. This in turn prevents redundancies which would occur if the company were to be liquidated.
CVAs also allow the directors of a company to stay in control, rather than handing the company over to the insolvency practitioner, as occurs with administration and liquidation.
More Information and Advice
Company Voluntary Arrangements can provide insolvent companies with a great way out of their debts problems. We have years of experience as insolvency practitioners, working with companies and their creditors to draft Company Voluntary Arrangements and find rescue solutions for companies with debt problems.
For more information about CVAs and advice on whether they could be a viable solution for your business, contact us as soon as possible. The faster you deal with your insolvency issues, the better the solution can be for all parties.