A Company Voluntary Arrangement (CVA) is a legally binding agreement with your company’s creditors which allows a proportion of its debts to be paid back over time. 75% of the creditors, by value, who voted need to support the proposal.
Once the proposal has been approved then all unsecured creditors are bound by the arrangement. The company can carry on trading as usual, and the directors remain in control. The CVA is monitored by a supervisor who must be a licensed insolvency practitioner. The arrangement usually lasts for 3 – 5 years.
A CVA is the best rescue tool for a company that is viable going forward but is burdened by historic debt. The directors, who remain in control, can trade out of their current financial problems provided they have addressed the problems that caused the debts in the first place.
A CVA is essentially a deal between the insolvent company and its creditors. This deal places a legal ring-fence, called a moratorium, around the company and stops creditors attacking it. This allows a viable but struggling company to repay some, or all, of its historic debts out of future profits. The repayments are made over a period to be agreed.
Directors stay in control of the company. It can stop legal actions like winding up petitions. The directors need to be committed to saving the business. Also, a company voluntary arrangement allows the opportunity for the business to be sold or refinanced.
The advantages of a CVA for your company
- Company voluntary arrangements can improve cash flow quickly.
- Stop pressure from HMRC tax, VAT and PAYE while the company voluntary arrangement is being prepared.
- A CVA can stop the threat of a winding up petition.
- Costs can be rapidly cut in a CVA as expensive managers can be made redundant.
- CVAs can terminate employment, payment/compliance obligations under leases, onerous supply contracts and all with nil / reduced cash cost.
- Also allows your company to terminate property lease obligations and vacate premises with nil / reduced cash cost.
- All money owed to creditors is bundled up in one monthly payment to the supervisor.
- Board and shareholders remain in control of the company.
- It is not publicly announced like administration is, you do not have to say your company is in a Company Voluntary Arrangement to your customers.
Finally, it can also represent value for creditors as they retain a customer and receive some of their debt back, usually between 30p and 100p in every £1 of debts, depending on what the company can afford to pay back.
Scholes CA assists companies to plan and manage their cashflows effectively; contact us today.