How a company voluntary arrangement can rescue a business in financial trouble For a company that is unable to pay its debts, the future looks bleak with the very real possibility of closure. This is where the business recovery process Company Voluntary Arrangement can be used save the company. Creditors agree to reduced payments over a period (typically 5 years) then leave the business debt free to trade on.
If your company is in financial difficulty a company voluntary arrangement could put a stop to court action such as a winding up petition and write off 50% or more of the business debt.
A company voluntary arrangement (CVA) is designed to rescue a business where it is unable to pay its debts and is facing closure. Creditors agree to accept a settlement of their debt payable over a five year period.
The business maintains agreed monthly repayments based on an amount that it can sensibly afford. While payments are being made, no further interest or charges can be added to the outstanding accounts.
At the end of the arrangement, any debt which has not been paid is written off by the creditors, leaving the company debt free.
One of the major questions people ask is:
How much does a CVA cost?
The answer is, that while a fee is payable to the insolvency practitioner who is licensed to implement and supervise the arrangement, this is normally deducted from the monthly payment to creditors. The business simply makes the agreed affordable monthly payment which is distributed by the supervisor on its behalf to the creditors and the fees are taken out of that payment.
This gives the CVA a significant advantage over a pre-pack administration or phoenix as a company rescue solution. Pre-pack administration will normally require a minimum investment of GBP15,000 in order to buy the old company assets.
A company voluntary arrangement is a private agreement. As such there is no advertisement and no need for clients to be told. In addition, the business is not broken up and key people and teams can remain together.
For a CVA Business practices may need to be changed
Although a company voluntary arrangement has significant advantages, there are also potential problems which need to be understood and managed.
Because there is no requirement for any of the Directors or management team to change, there is a risk that the mistakes which lead the company to get into debt in the first place will continue to be made. To avoid this situation, the directors implementing a CVA should consider introducing new ideas by employing a new member of the team.
In addition, having implemented a CVA, the company's credit rating will be affected. This may mean that it will be difficult to obtain additional bank finance while the arrangement is in place.
Despite these potential issues, the advantages of a company voluntary arrangement as a business rescue tool are significant. This is not least because no investment is required to implement the solution. This is a key advantage at a time when cash is almost certainly not freely available to the company.
What happens to the directors if a company is wound up?
Once a company is being wound up a Liquidator will be appointed. The liquidator will undertake an investigation into the conduct of the directors to see whether they have knowingly allowed the business to trade while insolvent thus making the creditor's position worse. If this is the case, a director may face being disqualified and held personally liable for the company's debts. As a Director we look at the options you have.
What will having a County Court Judgement do to my company
If a county court judgement remains unpaid, this could lead to more serious action being taken against the business. We look at the impact and what you can do.
Company debt restructure to improve cash flow
Ensuring that enough cash is available to maintain their business must be a priority for companies. Those that do it well will survive. Those that do not are likely to fall. As such identifying problems and implement solutions which may require a radical restructuring of debt must be a priority. We discuss some of the solutions available.
