The benefits of a company voluntary arrangement

by Keith Steven, KSA Group Ltd

A company voluntary arrangement (“CVA”) is a powerful rescue tool designed to help companies in financial distress, yet many directors are unaware of its benefits.

If a company is struggling with poor cashflow and directors are finding it difficult to keep up with tax payments, it’s likely the company is insolvent. While there are a number of options to consider, like administration or liquidation, the CVA approach is designed to turn the business around.

What is a CVA?

A CVA is a formal deal between the debtor (an insolvent company) and its creditors (lenders). It allows the company to pay back a proportion of debt from future trading surpluses over a set time-frame (usually between three and five years). Some debt may be completely written off to help ease cashflow pressure. For the CVA to work, the business must be demonstrably viable.

Unlike in administration, directors stay in control throughout the whole process. A CVA also gives the company an opportunity to restructure and re-evaluate the business, ensuring the right changes are made.

Benefits of a CVA

The biggest benefit of going into a CVA is saving the business! With an affordable repayment plan in place and a new structure, your business has every chance of success. Other advantages include:

  • Usually cheaper than an administration
  • It can stop legal actions, like winding up petitions
  • Ease pressure from HMRC (VAT, PAYE, Corporation tax etc)
  • Creditors will receive something back – Xp in the £1
  • Directors stay in control
  • You can terminate contracts and employment
  • You can terminate lease liabilities

The CVA process

If you are considering going into a CVA, the company can appoint an insolvency practitioner or supervisor to prepare a CVA proposal (which includes records of accounts and financial forecasts). The CVA must maximise creditors’ best interests for it be considered by all parties.

The proposal is then filed at Court and a copy is sent out to all creditors. From there, creditors have 17 days to consider the CVA before a meeting is held.

All creditors can vote at the meeting (or by proxy). The CVA can only go ahead if 75% or over (by value) approve the proposal.

Once the arrangement is underway, the company will make payments to the CVA supervisor every month. This will be then be distributed pro rata to creditors annually.

Depending on your financial situation, a CVA may be the best solution. However, it is important you seek legal advice before choosing any option. Directors have a duty to act accordingly in the event of insolvency as any wrongdoings could result in personal liability.

Keith Steven of KSA Group Ltd has been rescuing and turning around companies since 1994; he has worked for insolvency firms, turnaround funds and venture capital investors. Keith is acknowledged as an expert in the delivery of CVAs for SME companies faced with financial difficulties and is the author of the site www.companyrescue.co.uk.

Please be advised that all views expressed in these posts are those of the author and not of James Rosa Associates ltd.