Should I Use a Company Voluntary Arrangement (CVA) to Rescue my Business?
- By Derek Cooper
- Published Friday 22nd 2010
- Advice
- Unrated
Derek Cooper
Why not talk to us about how this solution could help your financial troubles, more details at 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 turnaround for small to medium sized companies
View all articles by Derek Cooper
A company voluntary arrangement is a great business turnaround solution. However, as you may expect it is not always the right solution for every situation. We look at what circumstances would normally make it the right choice to save a company in financial difficulty.
If your business is failing due to debt which you are unable to pay and you are spending your time juggling creditors rather than running your company, a company voluntary arrangement could be the ideal business rescue solution.
A company voluntary arrangement (CVA) allows a business to continue trading normally while ring fencing its debts within a manageable repayment plan. The company's creditors agree to receive reduced payments towards the debts owed for a fixed period (normally five years).
Two great advantages of the voluntary arrangement are:
1. Creditors are legally bound not to add any further interest or charges during the course of the arrangement.
2. At the end of the arrangement, any outstanding debt is written off (often up to 50%) by the creditors and the company is left to trade on debt free.
Business failing due to debt burden
Where a business is fundamentally sound and would continue to trade profitable if its legacy debt was taken away, a CVA may be the ideal solution.
Before the creditors agree to a company voluntary arrangement they will want evidence the returns they get are forecast to be more than if the business was simply liquidated. To achieve this, the business must be in a position where it is able to continue to trade profitably if its debts
are rescheduled.
No investment cash available
The directors of a business may have considered pre-pack administration (phoenixing) as a way of rescuing their company. However, this solution requires a cash lump sum to purchase the assets of the failing business. Very often such a lump sum cannot be raised. No upfront cash is required to implement a company voluntary arrangement. The agreement is funded through the ongoing trading of the business.
A winding up petition has been issued
If the company has received a winding up petition, the closure of the business can be prevented if a company voluntary arrangement is agreed with the majority of creditors.
It is often HM Revenue and Customs who petition for the winding up of businesses. However, if there is a possibility of agreeing a CVA which will return a sensible amount of the debt owed, HMRC is often supportive of such arrangements.
In the current economic downturn where trading is difficult and investment cash is not readily available, company voluntary arrangements are being used more and more to rescue failing businesses. They are seen as ideal for both a company and its creditors. The creditors have the advantages that they receive a higher return than if the company was closed, and the business' cash flow is given a significant boost as debt repayments are significantly reduced.
If you are considering a company voluntary arrangement, as with all company rescue solutions, there is a far greater chance of success if action is taken early. If you feel that your business is in financial difficulty, it is best to take professional advice immediately rather than wait until a winding up petition arrives through the letterbox.
If your business is failing due to debt which you are unable to pay and you are spending your time juggling creditors rather than running your company, a company voluntary arrangement could be the ideal business rescue solution.
A company voluntary arrangement (CVA) allows a business to continue trading normally while ring fencing its debts within a manageable repayment plan. The company's creditors agree to receive reduced payments towards the debts owed for a fixed period (normally five years).
Two great advantages of the voluntary arrangement are:
1. Creditors are legally bound not to add any further interest or charges during the course of the arrangement.
2. At the end of the arrangement, any outstanding debt is written off (often up to 50%) by the creditors and the company is left to trade on debt free.
Business failing due to debt burden
Where a business is fundamentally sound and would continue to trade profitable if its legacy debt was taken away, a CVA may be the ideal solution.
Before the creditors agree to a company voluntary arrangement they will want evidence the returns they get are forecast to be more than if the business was simply liquidated. To achieve this, the business must be in a position where it is able to continue to trade profitably if its debts
No investment cash available
The directors of a business may have considered pre-pack administration (phoenixing) as a way of rescuing their company. However, this solution requires a cash lump sum to purchase the assets of the failing business. Very often such a lump sum cannot be raised. No upfront cash is required to implement a company voluntary arrangement. The agreement is funded through the ongoing trading of the business.
A winding up petition has been issued
If the company has received a winding up petition, the closure of the business can be prevented if a company voluntary arrangement is agreed with the majority of creditors.
It is often HM Revenue and Customs who petition for the winding up of businesses. However, if there is a possibility of agreeing a CVA which will return a sensible amount of the debt owed, HMRC is often supportive of such arrangements.
In the current economic downturn where trading is difficult and investment cash is not readily available, company voluntary arrangements are being used more and more to rescue failing businesses. They are seen as ideal for both a company and its creditors. The creditors have the advantages that they receive a higher return than if the company was closed, and the business' cash flow is given a significant boost as debt repayments are significantly reduced.
If you are considering a company voluntary arrangement, as with all company rescue solutions, there is a far greater chance of success if action is taken early. If you feel that your business is in financial difficulty, it is best to take professional advice immediately rather than wait until a winding up petition arrives through the letterbox.
