Company Voluntary Arrangement may save your Business
A number of companies are struggling financially in the current economic climate with cash flow problems and mounting pressure from creditors. If it looks like you are facing insolvency, particularly where there is a large debt burden, a company voluntary arrangement (CVA) may be a good solution to rescue your business.
Historically a number of creditors were sceptical or resistant to CVA’s due to having to write off debt, but recent publicity of well known companies including JJB Sports plc, Focus DIY plc and Black Leisure has made them more realistic and less reluctant to consider the proposal. HMRC debts such as PAYE and VAT can also be included in this solution.
A company voluntary arrangement is a formal legal agreement with the company’s creditors to settle the business’s debt. The creditors agree to accept reduced payments based on what the business can afford to pay over a fixed period, normally five years. All creditors get chance to vote on the arrangement, but if 75% by value agree then all creditors are bound to the legal arrangement. Once these payments have been made, the creditors agree to write off any outstanding debt and the business is free to continue trading debt free. Frequently over 50% of the debt is written off.
Advantages for your Business
Advantages for the Creditors
Why would any creditor want to agree to a solution where they have to write off a significant portion of the debt!
Once a Company Voluntary Arrangement is agreed, then it is far from plain sailing. With historic debts reduced to manageable levels, the fortunes of the company still need to be turned around so that “history does not repeat itself”. Very often some tough decisions will be required to be made, and new ideas injected in order for the CVA to be a long term success.
Clearly a Company Voluntary Arrangement is one of the Business Recovery and rescue tools that can give breathing space to get a business back on a sound footing.