A Company Voluntary Arrangement (CVA) can be a vital lifeline when a business is in trouble. This binding contract between a company and its creditors ensures that liabilities can be paid back in a way that is manageable for the former but within a timeframe suitable for the latter.
Having a CVA approved by creditors can be a real relief for any company faced with the possibility of administration or liquidation. However, it is once the arrangement is in place that the real work begins. From actually repaying the debts to restructuring the company, there are several steps that will need to be completed after the arrangement has been agreed. To help you understand this process further, we have outlined what happens after a Company Voluntary Arrangement and the procedures that must be followed in this article.
Implementation Of The Arrangement
Once the CVA is approved, the company will have to begin implementing the terms set out within it. A licensed insolvency practitioner will act as Supervisor throughout this process to ensure that the company meets its obligations within the correct timeframes. Typically, they will complete the following processes.
Debt Repayment
One of the primary objectives of a CVA is to manage and repay company debts in a structured manner and the company will begin making payments to creditors as per the schedule set out in the arrangement. This will typically involve making agreed monthly payments over a specified period until the total debt is repaid. The licensed insolvency practitioner will oversee this part of the process and ensure that funds are distributed evenly and correctly amongst creditors.
Company Restructuring
Company restructuring can also form a key part of the Company Voluntary Arrangement process. Restructuring the business can be a vital tool in restoring profitability and the process will typically involve some degree of streamlining operations and cutting unnecessary costs. To restructure the business, management will need to develop a thorough restructuring plan and enter into a two-way dialogue with employees to inform them of any changes.
Impact On Employees
Company restructuring as the result of a CVA can have a significant impact on employees. Management will need to ensure that they get buy-in for any proposed changes, but is important to note that redundancies may be inevitable after a Company Voluntary Arrangement. While the primary goal is to save the company, the restructuring process might lead to the elimination of roles deemed non-essential to the reformed and streamlined business model. However, it should always be noted that a successful CVA can ultimately provide greater job security for those who remain by stabilising the company’s financial position.
Employees may also experience changes to their working conditions as part of the company’s restructuring plan. Communication is therefore key in the immediate stages after a CVA, as transparent and honest dialogue can help to maintain morale among employees and ensure they understand the necessity of this arrangement for the company’s survival and future success.
Impact On Creditors
Understandably, a CVA will also have a significant impact on creditors. Having voted in favour of the CVA, creditors will technically start receiving payments as outlined in the agreement. The precise terms of repayment will vary depending on the exact terms of the arrangement, but payments should follow the schedule set out from the outset and will typically be more favourable compared to potentially receiving nothing in a bankruptcy scenario or if the company were to liquidate.
The time after a Company Voluntary Arrangement can also mark the beginning of a renewed business relationship for creditors. By supporting the CVA, creditors demonstrate that they have a willingness to see the currently struggling company succeed in the long term and this can lead to better communication and more cooperative relationships leading forward.
Impact On The Company
To understand what happens after a Company Voluntary Arrangement, it’s also important to note the possible long-term consequences for the company itself. If successfully managed and implemented, a CVA can significantly improve the company’s financial health. The systematic repayment of debts and implementation of strategic changes ultimately work together to increase the chances of the company returning to profitability.
The Company Voluntary Arrangement procedure can also help to instil more disciplined financial and operational management practices within the company. Lessons learned during the restructuring phase may help to improve cash flow management in the future, encourage leaders to think more strategically, and therefore further boost the company’s chance of long-term recovery and success.
If your company is considering or entering into a Company Voluntary Arrangement, understanding what happens after the arrangement is agreed upon is crucial. While the implications and processes outlined in this article may seem complex and time-consuming, they play a pivotal role in business recovery and can guide the business back towards long-term financial health.
Should you require any additional advice related to CVAs or wish to instruct trustworthy professionals to help you through the CVA process, don’t hesitate to get in touch with the expert team at Ballard Business Recovery.
