Posted on: Friday 27th September, 2019
A Company Voluntary Arrangement, or CVA, is a mechanism via which struggling companies can repay all or a proportion of their debt. It’s a formal insolvency process that can only be instigated by a licensed insolvency practitioner (IP), and eligibility is limited to businesses deemed to be viable in the long-term.
Company Voluntary Arrangements effectively remove the financial pressure a company is under by legally preventing creditor action. The company is safeguarded as long as the CVA repayments are made as agreed, and it continues to trade whilst paying off some or all of the debts.
So how does a CVA work in practice, and when might it be an option for companies in financial distress?
A licensed insolvency practitioner is appointed to assess the company’s finances and determine whether a CVA is the best option. They make a repayment proposal to creditors, and if at least 75% agree, it comes into force straight away.
Once the CVA is in place, the company’s directors resume control and carry on trading. The CVA will typically last between three and five years, and as long as the conditions are met, any debt remaining at the end of the term will be written off.
A CVA may be an option if a company is experiencing cash flow problems that just require time to rectify - even though the company is insolvent, a CVA can prevent further slide towards liquidation and ultimate closure.
It may also be a good solution if a company has fallen behind with rent payments, as the CVA is typically a more attractive proposition to commercial landlords than liquidation. Although they receive lower payments, it means their premises are occupied and they can save the cost of finding new tenants.
If you would like more information on Company Voluntary Arrangements and their benefits and drawbacks, Redundancy Claims UK can help. We can also advise on your eligibility for director redundancy should your business enter liquidation. Call one of our expert team to arrange a free same-day consultation. RCUK are Authorised and Regulated by the Financial Conduct Authority. Authorisation No 830522. You can check our registration here.