CVA: The forgotten solution to company money problems

• Is your company in financial difficulty?
• Are you struggling to pay your creditors?

In this situation a CVA (Company Voluntary Arrangement) is one possible solution to keep your business going and bring it back onto a sound footing. If you believe you have a sound business – but it is being brought down by money that is owed, perhaps because of one major bad deal then this could be the answer you need.

Recently the CVA has been relatively unused as a corporate insolvency procedure. A CVA is a formal legal agreement with creditors to settle the business debt. The creditors agree to accept reduced payments based on what the business can afford, for a fixed period of normally 2-5 years. Once the agreed number of payments has been made, the creditors write off the remaining debt and the business is free to continue trading debt free. During the CVA you are also protected from other legal action by the creditors as long as you keep to the terms of the CVA.

Why would creditors agree to less money?

For a CVA to go ahead it has to be demonstrable that the return for unsecured creditors is better in the CVA than were the company liquidated. It is the very economic downturn that has caused your company debt problem that makes this more likely for two reasons:

Firstly the downturn has caused asset realisation values to be depressed, making it more likely that a CVA is a better outcome for creditors than liquidation

Secondly the creditors are more receptive to a CVA, as it may be possible to preserve an ongoing trading relationship with the CVA company, (even if only on a cash basis at the outset) keeping rather than just losing a customer.

Take the situation for landlords. They know that if is difficult to find tenants at the moment, so accepting a reduced rent rather than the probability of no rent makes good business sense. The same will be true for trading creditors. They do not like the idea of writing off some of the debt, but to accept that and keep a trading relationship going, bringing ongoing business may well be more sensible than forcing the company into liquidation, getting little return on that and no ongoing business.

Secured creditors are often supportive of a CVA as a secured creditor will end up with a client in better financial shape as a result of a CVA and hence will not call in any guarantees they hold.

In a CVA, the management and ownership can remain unchanged. Once it is in place, legacy creditors are dealt with by the CVA supervisor, letting the management drive the business forward for the benefit of all.

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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