One of the biggest factors that holds businesses back from profitability and success is unsustainable debt.
Not being able to repay principal amounts of debt and just repaying minimum amounts if that will cause more businesses to have financial difficulties than nearly any other cause.
This is why a company voluntary arrangement (CVA) could be so important and critical for a company to alleviate their debt burden.
Who can propose a CVA?
A CVA can be proposed by the company’s directors, shareholders or an administrator if the company is already in administration.
Will my business remain open with a CVA?
Yes. Voluntary arrangements are a means of restructuring whilst a business continues to trade.
However, if a winding-up petition has been issued prior to a CVA being accepted it is recommended that a validation order is applied for, otherwise directors can be held personally responsible for any payments made to creditors in the period that the petition was issued should the company be liquidated.
Do I have to use an insolvency practice?
Yes, it is a legal requirement that a qualified insolvency practitioner oversees the CVA process.
How long does a CVA last?
A CVA usually lasts about five years (60 months) but depending on circumstances could be shorter or longer than this.
How much does a CVA cost?
It depends on the size of your company and how much you owe to other businesses but usually will be somewhere between £3,000 and £10,000.
How much will I have to pay back?
The amount you have to pay back varies depending on how much you owe and how much your business returns.
How do you calculate how much my company pays into the CVA?
Profit & loss and cash flow projections will be prepared for your company.
From this and your business’ individual circumstances, we’ll determine how much your company can afford to pay at different times of the year.
Will a CVA automatically be accepted?
The CVA has to receive the backing of 75% of your creditors. If it passes the threshold then it is passed and is binding on all creditors.
What happens if creditors do not agree to the proposed CVA?
If creditors do not agree, the company might face liquidation or other insolvency procedures. However, the company can propose modifications to the CVA to address creditors’ concerns.
What happens to my employees in a CVA?
Employment rights are not affected by voluntary arrangements.
If, at the time of setting up a CVA, there are outstanding payments due to staff that have left the company, their claims can be included within the CVA, and they may be able to claim from the national insurance fund, after which the fund would be a creditor in the CVA instead.
Every business is different and the situations they find themselves in are different too. Our “BRE Answers” series is not meant to be complete or exhaustive but to provide a basic explainer.
If you want to know more about company voluntary arrangements and how they could benefit you then please get in touch with us!
After a free consultation with one of our team of expert advisors you’ll be in a better position to choose your next move and probably with a better range of options than you originally thought you’d have.
All you have to do is pick the best time and date for you and we’ll do the rest.