What Is A Company Voluntary Arrangement?
If your company is insolvent then you may have the option to enter into a Company Voluntary Arrangement (CVA). This is a binding contract between a company and creditors that sets out repayment of the company’s debts over a fixed period of time. A Company Voluntary Arrangement is a viable option for businesses that have a realistic chance of returning to profitability once creditor pressure has been removed. The process enables directors to trade out their financial issues whilst remaining in control of the company.
For companies that have a reasonable chance of returning to profitability, a Company Voluntary Arrangement can be a successful business rescue option. The advantages of a Company Voluntary Arrangement include:
The Company Can Continue Trading
One of the main benefits of a Company Voluntary Arrangement is that the company can continue trading whilst they are resolving their debts. The arrangement is not publicly advertised, but agreed privately between creditors and directors meaning that the company reputation is maintained whilst they are recovering. That’s why, with the correct help from a licensed insolvency practitioner, a CVA provides a viable way for the business to be recovered rather than being placed into liquidation.
Alleviates Creditor Pressure
Unsecured creditors are bound by the Company Voluntary Arrangement meaning that creditor pressure is immediately alleviated. In addition to this, interest rates on any of the debt submitted to the CVA will be frozen, giving the company time to focus on restructuring and recovering.
Directors Remain In Control Of The Company
Another major benefit of a Company Voluntary Arrangement is that it gives directors breathing space to focus their efforts on recovering their business. Directors remain in control as the company continues to trade. Directors know their business better than anyone else, and a CVA gives them the space to take the lead in restructuring the business and making it successful once again.
Unaffordable Debts Are Written Off
When a business enters into a Company Voluntary Arrangement the debts are reduced in size to match the company’s affordability, whilst ensuring that creditors still receive a return. Additionally, once the CVA is complete, any unsecured debt is written off. This is a major benefit as it means that the debts owed by the company could be substantially reduced.
Allows For Flexibility
In a CVA, liabilities can be paid over a long period of time, typically between 3-5 years. There is also scope to vary the terms of the Company Voluntary Arrangement in order to account for changes within the business. This gives the company the flexibility that they need to make changes to the business that will ultimately make it more profitable.
Enables Restructuring Of The Business
As we’ve mentioned, a Company Voluntary Arrangement gives directors the breathing space they need to look at recovering their business, without pressure from creditors and without disrupting the flow and reputation of the business. With the guidance of an insolvency professional, directors can assess the weaknesses within the business and formulate a rescue plan. That’s why the main benefit of a CVA is in enabling insolvent companies to return to profitability rather than closing down.
If your business is struggling financially and you think that a Company Voluntary Arrangement may be a viable option for your company, please don’t hesitate to get in touch with us today.