Why a CVA might be the closest equivalent for your business

Have you heard of the debt fairy? 

We only found her name out last month but we’ve been aware of her for years – especially from the people who’ve been hoping to see her. 

The idea of the debt fairy came about when people started wondering how much easier life would be if all their debts were combined into one easy to make and manage monthly payment. 

No more wondering how you could make all ends meet when there’s only one payment to service. 

The idea of the debt fairy is that she comes along, waves her wand and this magically happens. 

Of course, this doesn’t happen in real life but for businesses that are struggling with multiple unsecured debts overwhelming any potential profit – there is an equivalent that actually exists. 

It’s called a Company Voluntary Arrangement (CVA) and while it’s very useful for businesses – it’s not a magic spell. It’s real. 

What is a CVA?

Most simply, a CVA is a legal agreement between an insolvent company and its creditors collectively, which allows the reorganisation of a business’s debts into a single sum.  

The process allows for a company’s debts to be paid back over an agreed period of time (usually 60 months) at an affordable rate for the company to repay and one that’s agreeable to the creditors.

A proportion of the debt can also be written off as part of the negotiations to help make it a realistic proposition. 

Due to a CVA being a formal insolvency process, it must be carried out by a licensed insolvency practitioner. They will assess whether the business has a credible case and if they agree then they will begin putting together proposals to send to creditors who ultimately decide whether to accept the agreement. 

They have to vote on the proposals, and as long as over 75% in value voted in favour, the CVA would be accepted and would be binding on all other unsecured creditors.

Advantages of a CVA

Apart from reducing their monthly debt period and overall debt burden, there are several additional reasons why a business may benefit from a CVA:-

  • Avoiding Liquidation – A CVA can help a company avoid liquidation by providing a framework for your business to pay off its debts over time while keeping directors in overall control. 
  • Protection from legal actions – As long as you adhere to the terms of your agreement, creditors bound by the proposal cannot take further legal action. 
  • Improved cash flow – Unlike other insolvency solutions a CVA is designed to be mutually beneficial. The repayment amount per month is based on how a company can realistically afford based on their cash flow and because creditors want the business to keep trading as they will continue to be paid more than they would receive through a liquidation.
  • No reputational damage – A CVA allows your company to demonstrate to its creditors that it is committed to repaying its debts, which can improve their reputation and help them secure future funding. Unlike other insolvency procedures, a CVA is not advertised. 

If you think that your business might meet the criteria for a CVA, you should get in touch with us as soon as you can. 

We offer a free initial consultation where you can speak with one of our expert advisors about what the best course of action is for your business. 

It could be a CVA but depending on your own unique circumstances, another option such as administration or a creditors voluntary liquidation (CVL) might be more beneficial.

So while the debt fairy sadly doesn’t exist, the advice fairy definitely does – and she wants to speak to you!