A Company Voluntary Arrangement (CVA) is a process by which a company can pay off its debt in affordable monthly payments. They allow a company breathing space from its creditors, as well as providing the financial freedom to retain a workable business while working on repaying its debts.
At the end of a CVA period, the outstanding debt beyond the agreed repayment is written off, making CVAs one of the most popular methods for relieving company debt while remaining in control.
How does a CVA write off company debt?
A CVA is available to companies registered in England and Wales; these arrangements aim to reduce a company’s debt levels by creating an agreement with creditors, freeing up cash flow and allows all remaining debts to be written off after the duration of the CVA.
The process involves establishing the level of debt that a company can afford to repay. This amount is broken down into affordable monthly payments, solicited through a licensed insolvency practitioner (IP). These payments last for a fixed duration, usually five years, after those five years, it will write off the remaining company debt.
For a CVA to be accepted, a creditors’ meeting must be held. In the meeting, 75% of those attending (by the value of the debt) must vote in favour of the CVA. Typically, this is only the case if the creditors agree the arrangement would provide them with a better return than alternatives.
Is a CVA right for me?
Although a CVA might sound like a magic fix for every scenario, it’s only appropriate for certain companies in certain situations.
These situations include:
- The company has the potential to be profitable if creditor pressure is removed.
- A company has a workable business model but is held back by cash flow problems.
- The company needs restructuring to be successful.
- You, as a director, have been unable to agree to a repayment plan with creditors.
- You wish to retain managerial control of the company while working on its recovery.
A CVA can be advantageous to both creditors and the company’s directors and shareholders. Once the arrangement comes into effect, the company is protected from legal action from creditors, and there are no upfront fees for the procedure, with the costs included in the monthly repayments.
However, a CVA can have some consequences; which are important to consider before deciding whether it’s the best option.
A Company Voluntary Arrangement (CVA) is an efficient and positive way to steer a struggling company in the direction of success. It allows for freedom from the action of unsecured creditors, and affordable repayment of debt while allowing directors to retain control of the company. The process must be carried out by a licensed insolvency practitioner (IP). Once the agreed period of a CVA is over, any outstanding unsecured debt beyond the agreed repayment is written off. A CVA may only be suitable for certain companies in certain circumstances; therefore, it is important to recognise the demands and implications of entering into a CVA.
How we can help
If your business is struggling financially but has the potential to be profitable without pressure from its creditors, then a CVA may be the best solution. We offer a free consultation to establish the suitability of a CVA based on your situation, and we can guide you through the process and its alternatives before you decide. If you are willing to work towards saving your company, while sticking to a CVA’s terms, get in touch with a member of our team today.
Book a free telephone consultation with one of our initial advisers