A CVA, or Company Voluntary Arrangement, enables landlords and creditors to receive all or a proportion of the money owed to them by a debtor company, over an extended period of time.
A CVA formally restructures the debts of a company, but the business must be deemed viable by a licensed insolvency practitioner (IP) before being eligible. Company Voluntary Arrangements are only appropriate for viable businesses – essentially, those that are experiencing financial distress on a temporary basis.
So how do Company Voluntary Arrangements work for landlords and creditors?
How does a CVA work?
A licensed insolvency practitioner is appointed by the debtor company to formulate a realistic proposal based on affordability. They then present the proposal to the company’s landlord and creditors.
If 75% or more of creditors (by value of debt) accept the proposal, the Company Voluntary Arrangement comes into effect. A CVA is a legally binding agreement that typically lasts for up to five years, and during this time the company has the opportunity to trade its way out of financial difficulty.
In order to formulate a proposal, the IP assesses the company’s earning potential, how much it can afford to repay each month, and over how long. A single monthly repayment is made to the CVA, which is then distributed to creditors and landlords in the agreed proportions.
How does a CVA benefit landlords and creditors?
When a CVA is sanctioned by creditors, it means the business can continue trading. This preserves the working relationship between the company and its suppliers, and provides landlords with an ongoing commercial tenant.
If the debtor company had to close down due to unmanageable debt, the landlord would be forced to spend valuable time and money finding a new business to take up the lease. This is a challenging task in normal times, but particularly difficult post-Covid-19 when home working has become standard practice.
A CVA also means that other creditors, such as suppliers, can preserve what may previously have been a very good trading relationship with the company. If suppliers understand they can recoup more money via a CVA than by other means, and that the debtor is trying to maximise their interests, the long-term benefits of a CVA become clearer.
What are Fast Track CVAs?
Fast Track CVAs can quickly enable businesses experiencing short-term financial decline to manage their debts, and provide creditors with a higher return than liquidation. The procedure is expedited to put in place the legally- binding agreement, so that landlords and other creditors can quickly receive some form of debt repayment, albeit at a lower level than contractually agreed.
If you would like more information on what CVAs mean for landlords and creditors, our expert team at Fast Track CVA can help. We’re CVA experts with 30+ years’ experience, and will provide the tailored advice you need. Please get in touch to arrange a free, same-day consultation – we work from offices throughout the UK.