To allow your business to stay alive while paying back a manageable amount of debt, you might be best off making use of a Company Voluntary Arrangement (CVA). A CVA is a legal contract between you and your creditors that will allow you to pay off a portion of your business debt in a manageable way. This process is overseen by an Insolvency Practitioner (IP), so you do not have to worry about managing this yourself.
Although most people associate CVAs with large corporations, they can actually be used by smaller businesses as well. However, you first have to meet specific requirements in terms of eligibility. So, can a small business use a CVA? Yes, however, you need to meet the required eligibility criteria. Let’s take a look at CVA eligibility.
What Is A CVA?
A Company Voluntary Arrangement (CVA) is a binding agreement made between a company and its creditors. It provides the company with an opportunity to repay an acceptable portion of outstanding unsecured debts in instalments over a predetermined period. Typically, this will be over a period of three to five years. During this time, the company is allowed to continue operating while it works towards recovering financially. In essence, a CVA prevents the company from being placed into Liquidation.
CVA Eligibility
There is no defined minimum company size or revenue level that qualifies a company’s CVA eligibility. Even the smallest family-run or owner-managed businesses are eligible to propose a CVA, provided they meet the qualifying CVA eligibility criteria. These are:
- The company must be a Limited Liability Company.
- The company must currently be suffering financial difficulties, although it retains the potential for long-term viability.
- Sufficient future earnings should exist to enable the company to make timely monthly payments.
- The proposed CVA is likely to result in greater returns for creditors than would otherwise occur in Liquidation.
An individualised evaluation of each situation is necessary due to varying circumstances prior to determining CVA eligibility and whether it’s the best course of action.
What Makes A Business Suitable?
It is not how large the business is that determines suitability for a CVA but rather whether the business has any reasonable expectation of recovery. If a business suffers from short-term cash flow problems, loses a major client or accumulates significant amounts of tax liability but possesses a strong core operational capability, then it may still possess a viable means to earn profits. As such, it may be able to utilise a CVA as an interim measure until its financial situation improves.
Is A CVA Suitable For My Business?
Even if you check all of the boxes for CVA eligibility, it’s not necessarily suitable for every distressed business. However, it can create an effective way out for small businesses that have a positive future ahead and require time to address historical debts.
Obtaining advice quickly often represents the dividing line between successful restructuring and insolvency. An expert business rescue advisor can determine your CVA eligibility, examine your company’s current financial condition and outline alternatives available to assist in developing strategies to achieve success through either a CVA or other methods.
If you’re looking for an experienced, communicative and reliable partner, look no further than us at Ballard Business Recovery. You can get in touch with us for assistance today.
