As inflation, high interest rates and tightening financial conditions continue to pose challenges to businesses across the UK, you may be reconsidering your own survival strategies. Times are undoubtedly tough for many, and for businesses facing financial distress, a Company Voluntary Arrangement (CVA) can be a crucial lifeline by offering a structured solution to manage debts while continuing operations.
As we await the outcome of the upcoming Autumn Budget with economic uncertainty likely to persist into 2025, now may be the time for you to consider a CVA. Read on as we explore what a CVA entails and explain why it could be an appropriate next step if you are struggling to weather the ongoing financial storm.
What Is A Company Voluntary Arrangement?
A CVA is a formal and legally binding agreement between a company and its creditors. It allows a struggling business to repay its debts over a defined period and often with modified and more favourable payment terms. Unlike other insolvency procedures, a CVA can be such a valuable lifeline as it allows the business to remain operational while restructuring its debt. The ultimate goal of the arrangement is survival, avoiding further losses for both the company and its creditors which may be the case if the company were to collapse and enter into administration or liquidation.
Reasons To Consider A CVA
If your business is struggling to pay its debts, prompt action is crucial. Burying your head in the sand will only make your problems worse and could lead to more severe action than if you were to be open and honest with your creditors. With this in mind, it is worth considering your possible routes to survival sooner rather than later.
There are many reasons why the idea of a CVA should be at the forefront of these considerations, including:
Protection From Creditor Action
One of the most compelling reasons to enter into a CVA is that it provides your company with legal protection from creditors, offering much-needed respite to restructure and recover. Once a CVA proposal is accepted it is legally binding and this means that creditors cannot take further and harsher action like initiating a winding-up petition to recover their debts.
The benefits of a freeze on creditor action extend well beyond the temporary relief of knowing your business will not become insolvent and be forced to close. A CVA typically lasts 1 to 5 years and therefore offers the longer-term window needed to truly restabilise operations and emerge from financial distress in a stronger and more sustainable position.
Flexibility To Restructure
The breathing space granted by a CVA also allows for time to implement restructuring measures, further strengthening the likelihood of recovery as a result of the arrangement. Company directors continue to remain in control of day-to-day operations when the CVA is in place, allowing you to make key strategic decisions to improve the company’s long-term outlook. This differs from more drastic insolvency procedures like administration where control of the company is handed over to an external administrator.
With control retained, directors can restructure both debts and operations. As well as negotiating extended repayment terms or reduced payments through the terms of the CVA itself, you may also be able to make strategic operational adjustments such as downsizing or renegotiating contracts to improve the competitiveness of the business model.
Navigate Difficult Credit Terms
We have seen the credit environment become increasingly challenging in recent years, as banks and lenders have adopted stricter lending criteria in response to ongoing economic volatility. A CVA can provide a structured solution in these circumstances, offering a structured alternative to borrow more money and avoid insolvency without taking on additional debt.
When existing debts are restructured through the terms of the CVA, your business can free up valuable cash flow for day-to-day operations. This breathing space can be critical to keeping the business afloat when new credit is hard to come by.
Rescue Your Business With A CVA Today
Throughout all of these reasons to consider a CVA is one clear underlying theme: recovery. The overarching goal of this agreement between businesses and creditors is always to avoid insolvency and provide a clear path towards long-term recovery. A Company Voluntary Arrangement therefore offers a proactive and flexible solution to struggling businesses – something that is well worth considering if you are concerned about securing your future into 2025 and beyond.
If you need any further guidance or wish to initiate the process of business turnaround with the help of a trusted expert, don’t hesitate to get in touch with the team at Ballard Business Recovery today. Our business rescue experts have years of experience guiding company directors through the CVA process and are on hand to help you feel confident that your business can thrive again.
