How can a company voluntary arrangement save my business?

If your company is in financial difficulty a company voluntary arrangement could put a stop to court action such as a winding up petition and write off 50% or more of the business debt.

A company voluntary arrangement (CVA) is designed to rescue a business where it is unable to pay its debts and is facing closure. Creditors agree to accept a settlement of their debt payable over a five year period.

The business maintains agreed monthly repayments based on an amount that it can sensibly afford. While payments are being made, no further interest or charges can be added to the outstanding accounts.

At the end of the arrangement, any debt which has not been paid is written off by the creditors, leaving the company debt free.

A CVA requires no upfront investment required

One of the major advantages of a company voluntary arrangement is that it can be implemented without any upfront investment. Once the arrangement is in place, the business simply starts to make a single affordable monthly payment which is then distributed on its behalf to its creditors.

Fees are payable by the company to the insolvency practitioner who carries the required license to implement and supervise the arrangement. However, these are deducted from the company's monthly payment and are not payable in addition.

This gives the CVA a significant advantage over a pre-pack administration or phoenix as a company rescue solution. Pre-pack administration will normally require a minimum investment of £15,000 in order to buy the old company assets.

A company voluntary arrangement is a private agreement. As such there is no advertisement and no need for clients to be told. In addition, the business is not broken up and key people and teams can remain together.

For a CVA Business practices may need to be changed

Although a company voluntary arrangement has significant advantages, there are also potential problems which need to be understood and managed.

Because there is no requirement for any of the Directors or management team to change, there is a risk that the mistakes which lead the company to get into debt in the first place will continue to be made. To avoid this situation, the directors implementing a CVA should consider introducing new ideas by employing a new member of the team.

In addition, having implemented a CVA, the company's credit rating will be affected. This may mean that it will be difficult to obtain additional bank finance while the arrangement is in place.

Despite these potential issues, the advantages of a company voluntary arrangement as a business rescue tool are significant. This is not least because no investment is required to implement the solution. This is a key advantage at a time when cash is almost certainly not freely available to the company.

Derek Cooper - January 2010

If your business is in financial difficulty why not talk to us about possible solutions such as http://coopermatthews.com/company-voluntary-arrangement.html

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

Cooper Matthews specialise in Business Recovery Services Advice providing straight forward insolvency advice for businesses in difficulty and business owners with personal financial problems. They have significant experience in working with small to medium sized businesses.

Prior to Cooper Matthews Derek Cooper was the Managing Director of Wilson Philips specialising in personal insolvency and financial restructuring. He previously worked for 11 years as a financial advisor for Allied Dunbar, and later the J Rothschild Partnership. Derek's experience of both corporate insolvency and business management puts him in a position to be able to understand the challenges facing businesses in today's economic environment.

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