What are the advantages and disadvantages of a Company Voluntary Arrangement (CVA)?
A Company Voluntary Arrangement (CVA) is a formally agreed payment plan that will allow you to restructure your company’s unsecured debt. The procedure can only be carried out by a licensed insolvency practitioners like ourselves and will allow you to consolidate your company’s debt, whilst continuing to trade.
The procedure can benefit you as a director, shareholders and creditors, but it’s important to understand the implications of the process.
Advantages of a CVA
A CVA has many benefits, including but not limited to:
- Allows the company to continue trading
CVAs allow your company to continue trading while repaying its debts in affordable instalments over a period of up to five years. Staying open continues the brand, preserves jobs, and helps maintain a goodwill and positive reputation with its customers.
- Helps with cash flow
Repaying your company’s debts over a longer period and in affordable instalments helps improve its cash flow.
- In creditors’ best interest
Creditors may prefer if your company enters a CVA as they’re more likely to receive recovered funds than through alternative insolvency options.
- Directors retain control of the business
As director, you will maintain control of the company throughout the arrangement, making the process an appealing way for you to continue operations while managing the debts.
- Creditor pressure is paused, giving the company time for turnaround
Once the arrangement comes into force, you company is protected from the pursuit of legal action like CCJs, enforcement action and winding-up petitions from creditors in the arrangement.
Dealing with creditor pressure - Remaining unsecured debt is written off at the end of the CVA process
Because the figure agreed in the monthly repayments is based on your company’s position to repay its debt and has been approved by creditors, any remaining unsecured debt included in the arrangement is written off. This means that creditors may take no further legal action once the CVA concludes, even though they may not have received the full amount that they were owed.
- Breathing space and increasing the chance of survival
By providing breathing space, you can implement measures to increase your company’s revenue and restructure its operations, a CVA can increase the likelihood that your company will survive and return to a profitable state, benefitting the employees, creditors, and shareholders.
- Interest rates frozen
Any debts submitted as part of the CVA will have their interest frozen for the arrangement’s duration.
- Shows a willingness to repay
Entering a CVA demonstrates that your company is committed to repaying what it owes and finding a solution to its financial issues, and in doing so, helping maintain a good reputation.
- Less intrusive, expensive, and time consuming than administration or liquidation
While administration and liquidation could negatively impact your company’s public image, CVAs can avoid this as they allow you to continue trading. The process can also be less time consuming and expensive than those other insolvency procedures.
- Director conduct is not investigated
As the process doesn’t involve liquidating your company, your conduct as director in the time leading up to the period of insolvency is not investigated.
- Potential for flexibility
CVAs can be more flexible than other insolvency arrangements. So, if your company’s situation changes and it’s unable to meet its repayments, we can help can propose a variation to creditors. Repayments could be reduced for a period, or creditors may permit a payment holiday.
- Tailored to your company’s affordability
Once one of our IPs has assessed your company’s financial situation, the monthly repayments are tailored to what it can afford.
How CVA fees are charged
Disadvantages of a CVA
A CVA does have drawbacks to consider when deciding if it’s right for your company:
- Company credit rating is affected
A CVA can negatively impact your company’s credit rating, although insolvency means it’s probably already affected. During the first few years, you may have to pay for goods on a proforma basis as it will be harder to get credit. Once the CVA is over, your company can start to rebuild its credit rating.
- Legally obliged to adhere to the scheme
While there is an element of flexibility in amendments to the agreement (if accepted by creditors), the CVA terms will be quite strict in what it expects of your company.
- A CVA’s failure can lead to further insolvency measures
Failing to keep to the CVA’s terms can lead to further insolvency procedures.
What can happen if a CVA fails? - Creditors need to approve the proposed arrangement
Creditors need to be convinced that a CVA would provide them a better return than if your company were to close. They can still push for liquidation if they’re not convinced.
How our services can help your company
If you’re worried about your company’s financial position or outstanding debts, we can review your situation and provide free, confidential advice with no obligation. We’ll assess whether a CVA is a suitable option, and if it isn’t the right fit, we’ll guide you through alternative insolvency solutions that may better suit your company’s circumstances.
- Restructure your company through administration
Administration is an insolvency procedure for companies. Entering the procedure, your company will be in a temporary state of protection by a moratorium that halts creditor action, including legal proceedings, giving your company the breathing space to continue trading. We will act as administrator and our primary purpose is to rescue your company as a going concern, attempting to restructure and turn it into a leaner, more profitable organisation. If rescuing the company isn’t a viable option we will also look at the most appropriate exit strategies from administration, whether that be a potential sale of the business, assets, the whole company, or transitioning to an alternative insolvency procedure.
- Close your company down via a Creditors Voluntary Liquidation (CVL)
A CVL is a liquidation procedure for companies that are insolvent. The process will formally close and liquidate your company, ceasing its trading operations, realising any assets, and removing the threat of creditor legal action. If your company has employees, they can claim for redundancy and other statutory entitlements through the government’s Redundancy Payment Service (RPS). The process is final and irreversible. Once completed, your company’s unsecured debt will be written off and the company is dissolved, allowing you, the director, to move on.
- Close your company down and start again via a pre-pack liquidation
A pre-pack liquidation is a type of CVL where the sale of your company’s assets is arranged before liquidation, allowing business operations to continue seamlessly under the purchasing company. The company name may be reused, and employees can transfer under TUPE. Contracts and essential agreements can also be included as part of a sale, ensuring minimal disruption to your business operations. This process eliminates the unsecured debts of your previous company, providing a fresh start free from previous unsecured liabilities.
How to get in touch with us: The next steps
- Speak with our initial advisers
Make contact with our team, via phone, filling in a form, or online chat. We will assess your circumstances and, if suitable, arrange a free consultation with a consultant to discuss your company’s situation. - Initial assessment
During the consultation, we will advise if an insolvency procedure is the most appropriate route forward or whether alternative solutions better suit your company’s problems. - Formally engage with Wilson Field
If there is an appropriate insolvency solution, we will confirm the necessary steps to start the procedure and will issue you with the relevant documentation for you to formally engage us.
In summary
There are advantages and disadvantages to consider when deciding if a CVA is suitable for your company. It is important to remember that a well-put-together CVA is one of the few routes out of debt which allows your company to remain open, trading, and with you at the helm of proceedings.
The process can have many positive outcomes, including but not limited to:
- Allows the company to continue trading
- Helps with cash flow
- In creditors’ best interest
- Allows directors to retain control
- Creditor pressure is paused
- Remaining unsecured debt is written off at the end of the process
- Breathing space and increased change of survival
- Interest rates are frozen
- Shows a willingness to pay
- Less intrusive, expensive and time consuming than administration or liquidation
- Director conduct is not investigated
- Potential for flexibility
- Tailored to your company’s affordability
Case Studies
Silcox Coach Company
Kelly Burton • Automotive • Company Voluntary Arrangement (CVA)
Pembrokeshire-based Silcox Coach Company, which operates school transport as well as local bus services, has been placed into administration today.
Despite attempts by administrators from Sheffield-based Wilson Field to secure a buyer with various interested parties, the 134-year-old company, which operated a fleet of 65 coaches and buses from its base in Pembroke Dock, has now ceased trading.
Insolvency practitioners Kelly Burton and Joanne Wright from Wilson Field Limited were appointed by shareholders after the company experienced financial difficulties and as a result all 92 staff jobs have been made redundant.
However, in the region of 50 staff have been re-employed by Edwards Coaches of Pontypridd who have been granted the local authority contracts previously operated by Silcox.
Kelly Burton, director and insolvency practitioner at Wilson Field said:
“Silcox Coaches was a fourth generation bus and coach operator and over the years provided various forms of transport services latterly focussing local authority community bus routes, school services, coach hire and coaching holidays.
“The company had an excellent reputation within the industry, the local community and its clients. Initially there were a number of parties interested in buying the business and assets and we had hoped to save all the jobs of the loyal workforce. Sadly, despite our best efforts none of these came to fruition. On the positive side, Edwards Coaches of Pontypridd have re-employed approximately 50 of those staff.”
As well as office accommodation in Pembroke Dock, Silcox also occupied a small travel office in Tenby and a large bus and coach compound near the offices in Pembroke Dock.
Edwards Coaches is the largest family owned coach company in Wales employing over 500 staff and operating 260 vehicles. It currently operates National Express coaches from Haverfordwest departing daily to Cardiff, Heathrow, Gatwick London and various other destinations plus transportation for over 8000 students to school or college each day from bus depots all over South Wales.
It also operates coach holidays for 80,000 passengers a year across the UK and Europe and operates The Edwards’ Red Dragon coach which is the official carrier of the Wales Rugby Team.
Travellers who have booked and pre-paid for a holiday with Silcox may be entitled to a refund and should contact either Bonded Coach Holidays (BCH) e-mail: bch@cpt-uk.org or The Confederation of Passenger Holidays UK (CPT) Tel: 020 7240 3131.
Designer Recliners Limited
Kelly Burton • Manufacturing • Administration, Company Voluntary Arrangement (CVA)
A Sheffield furniture manufacturer and upholster has relaunched offering a smaller, more specialised range of products.
Anico Interiors Limited, which included reclining chairs for the elderly, had suffered cash flow problems and issues with profitability.
Designer Recliners Limited, managed by director Nick Wall, has purchased the assets and business of Anico saving all 11 jobs.
Andy Wood and Robert Dymond from Sheffield business turnaround experts Wilson Field were appointed joint liquidators on 8 June and advised on the sale of the 14-year-old company, based on Orgreave Crescent at Orgreave Industrial Estate, as a going concern.
Andy Wood, associate director and insolvency practitioner at Wilson Field said:
“Historically, the company offered a wide range of products but has now streamlined its offer to customers and cut out some unprofitable lines, as well as re-vamped its web site.
“Directors took advice from Wilson Field with the business sold to new company Designer Recliners Limited as a going concern, safeguarding all 11 employees’ jobs. The new company will offer the same service and standards under the same management team but focus on a smaller range of specialised products.”
The company employs skilled staff including upholsterers, seamstresses and cutters and was set up in 2002 by Nick Wall.
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