The right time to use a Company Voluntary Arrangement (CVA) A company voluntary arrangement could be the ideal business rescue solution. If your business is failing due to debt which you are unable to pay and you are spending your time juggling creditors rather than running your company. For a business in financial difficulty a company voluntary arrangement can be a great business recovery solution.
If your business is failing due to debt which you are unable to pay and you are spending your time juggling creditors rather than running your company, a company voluntary arrangement could be the ideal business rescue solution.
A company voluntary arrangement (CVA) ring fences the company debts in a manageable repayment plan and allows it to keep trading normally. The company's creditors agree to receive reduced payments towards the debts owed for a fixed period (normally five years).
Two great advantages of the arrangement are:
1. Creditors are legally bound not to add any further interest or charges during the course of the arrangement.
2. At the end of the arrangement, any outstanding debt is written off (often up to 50%) by the creditors and the company is left to trade on debt free.
Business failing due to debt burden
Where a business is fundamentally sound and would continue to trade profitable if its legacy debt was taken away, a CVA may be the ideal solution.
Before the creditors agree to a company voluntary arrangement they will want evidence the returns they get are forecast to be more than if the business was simply liquidated. To achieve this, the business must be in a position where it is able to continue to trade profitably if its debts are rescheduled.
No investment cash available
The directors of a business may have considered pre-pack administration (phoenixing) as a way of rescuing their company. However when a business is struggling it is not always possible to raise the up front lump sum that is required for this solution. No upfront cash is required to implement a company voluntary arrangement. The agreement is funded through the ongoing trading of the business.
A winding up petition has been issued
If the company has received a winding up petition, the closure of the business can be prevented if a company voluntary arrangement is agreed with the majority of creditors.
It is often HM Revenue and Customs who petition for the winding up of businesses. However, if there is a possibility of agreeing a CVA which will return a sensible amount of the debt owed, HMRC is often supportive of such arrangements.
In the current economic downturn where trading is difficult and investment cash is not readily available, company voluntary arrangements are being used more and more to rescue failing businesses. They are seen as ideal for both a company and its creditors. The creditors have the advantages that they receive a higher return than if the company was closed, and the business' cash flow is given a significant boost as debt repayments are significantly reduced.
If you are considering a company voluntary arrangement, as with all company rescue solutions, there is a far greater chance of success if action is taken early. If you feel that your business is in financial difficulty, it is best to take professional advice immediately rather than wait until a winding up petition arrives through the letterbox.
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.
