Why not to do a Company Voluntary Arrangement to solve company financial problems

So your company is in financial crisis, it has major cashflow problems and you are at your wits end what to do. You have done a bit of research on Company Debt problems and come across a Company Voluntary Arrangement as a possible business rescue option – but is it for you?

Sometimes the best way to think about if this will provide business turnaround for you is to look at the negative points and check your business does not match them – then you can be more sure it is right for you.

If after reading this you don't think it will help your company debt problem – don't despair, I list some other Business Debt Rescue options at the end.

Firstly a very brief summary of what it is.

A Company Voluntary Arrangement (or CVA) is a legal agreement between your company and its creditors, based on the company repaying a fixed amount that is lower than your actual outstanding debt. The repayments are calculated monthly, based on an amount that the business can reasonably afford. Remaining debts are written off at the end of the arrangement. Typically around 45% of business debts may be written off during the course of a CVA, leaving you debt free to carry on trading.

So what are the disadvantages of doing a CVA

Legally Binding

It is a legally binging agreement registered with the courts. If you fail to keep to the agreed terms and payments then the company is likely to be liquidated perhaps leaving the directors personally liable for company debt if they are found to be guilty of wrongful trading.

Make sure you consider very carefully how you will meet the payments ongoing in a depressed market place – not just grab the lifeline without thinking it through.

Credit File Affected

Once a company voluntary arrangement is in place, this is recorded on the company's credit file and will have a negative effect on its credit rating. This has two likely affects. Firstly and most obviously it will make borrowing in the future more difficult. Secondly and less often noted is the potential effect on new business. Before starting up a new relationship with you, other companies will often check the financial viability of your business. If they see that a CVA is in place, they may worry that the company is financially unstable and take their business elsewhere.

Take into account this possible effect when considering the ongoing business plan

No forced change to company procedures

When a company voluntary arrangement is implemented, there is no requirement for management changes. It is usual for the same directors and managers will continue to run the business. However without some changes and fresh ideas there is the risk that the same mistakes and situations will arise again and the company will run into the same trouble again.

You need to ask what will be different this time that will avoid a repeat of the business troubles.

Hopefully as you consider these questions you can answer those sensibly, and also take into account the advantages and the possibility of saving your company.

Reduced Monthly Payments

Your monthly debt payments will be reduce to an affordable amount

Legal protection from creditors

The business is legally protected from further action by its creditors to collect their debts. As such, country court judgements (CCJs) and importantly winding up petitions cannot be issued against the company.

Debt written off

If the CVA is completed, a large amount of the company's debt including debts to HM Revenue and Customs is written off. This leaves the business in a much better position to trade profitably and grow in the future.

If this looks to be the business rescue solution for you then talk to a business recovery expert NOW and start the process. If however you are left with questions or do not think it is right for you, then still talk to the business recovery expert about your concerns and also about other company debt rescue options such as Pre Pack Administration, Administration or maybe Liquidation.

Talk to us about Business Debt Rescue options solve your company troubles Business Debt Rescue Options

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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