Advantages of a CVA to solve business debt

With recent announcements following the budget that the public sector may need to lose 600,000 jobs over the next few years it is clearly going to be tough trading conditions for companies for some while. If you were hoping for a quick pickup in the economy to fix your business cash flow problems then unfortunately that is unlikely to happen.

Instead you need to face the business problems head on, act now and look at solutions to solve business debt problems. One of the company insolvency options available to turnaround your business problems is the Company Voluntary Arrangement or CVA. Firstly we will briefly look at what a CVA is, and then we will look at the advantages of the CVA as a solution.

1) What is a Company Voluntary Arrangement?

A CVA is a legal agreement (through an Insolvency Practitioner) with your creditors to make reduced payments on the monies owed for a fixed period of time (often 5 years) at the end of which the remaining debt is written off and you can trade on debt free.

2) Advantages of doing a CVA

Cashflow is improved. Once a CVA is agreed, then monthly payments to the creditors will be reduced improving cashflow to the business. This will allow the business to continue running and generating business.

Debt written off. At the end of the agreed time period the remaining debt (often 45% or more of the debt) is written off by the creditors. This leaves the company debt free to carry on trading.

No upfront fees are required. Fees are charged by the Insolvency Practitioner but these are taken from the ongoing agreed monthly payments and therefore there is no requirement for the directors to raise funds up front to cover them.

Private agreement. A CVA is a private agreement. Suppliers (other than creditors) and customers do not need to be told about the situation which is normally a significant advantage in continuing to trade. Suppliers and customers nervous about the financial viability of the company will often restrict trading and credit terms exacerbating cashflow problems - with a CVA this can be avoided.

Legal actions avoided and stopped. Once a CVA is in place then legal actions such as a winding up petition will be stopped. While you continue to meet the terms of the CVA the creditors cannot change their mind and take you to court to try and recover the debt.

What do I do next?

A company voluntary arrangement is a legal agreement not without risks and therefore should not be entered into without advice from a corporate insolvency expert. They will be able to discuss the advantages and risks for your specific situation. However in many cases it is the the best answer for a company rescue. 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 - do not wait until a winding up petition arrives through the letterbox.

Talk to us about how a CVA could solve your company troubles Company Voluntary Arrangement

Derek Cooper is Managing Director of Cooper Matthews Limited and a member of the Turnaround Management Association UK.

Cooper Matthews specialise in Company Debt Rescue providing straight forward insolvency advice for business owners with business and personal financial problems. They have significant experience in working with small to medium sized businesses, working with Directors, Sole Traders and Self Employed.

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