If your business is currently in financial decline, perhaps because of Covid-19, but you know the situation can be remedied given a little more time, a Company Voluntary Arrangement (CVA) may be a good option.
CVAs are available to limited companies in the UK, and provide a degree of financial stability whilst the business trades its way out of difficulty. So what exactly is a CVA, and is it right for your company?
What is a CVA and how does it work?
A Company Voluntary Arrangement is an official repayment plan that enables viable businesses to escape temporary financial difficulties. It must be formally negotiated by a licensed insolvency practitioner (IP), but directors take back control of the company once it’s in place.
A majority of 75% of unsecured creditors (by value of debt) must sanction the CVA proposal before it can be passed, along with a majority of 51% of shareholders. Company Voluntary Arrangements typically last between three and five years, and repay all or a proportion of the debt.
A single payment is made to a CVA, which is overseen by a licensed IP, who distributes the payments to creditors in the agreed proportion. As long as payments are made each month, the CVA allows the company to trade its way back to profitability.
What are Fast Track CVAs
The coronavirus pandemic has created an unprecedented situation where extremely fast action is often required to save businesses that were previously profitable. Fast Track CVAs address the issue by quickly putting in place a new arrangement, enabling businesses to carry on trading with a view to recovery.
If yours is an owner/managed business or a small to medium sized company that’s agile and streamlined, a fast track CVA may be an appropriate solution if it’s experiencing short-term financial difficulty.
Benefits of a CVA
- Stops pressure from creditors
- Enables directors to retake control of the business once in place
- Allows the company to make affordable debt repayments
- Ceases all existing or planned legal action by creditors
- Prevents a further decline and potential liquidation
- Provides a better return for creditors than liquidation
Is a CVA right for my company?
If your company’s financial problems are deemed short-term by a licensed IP, and you can fulfil the new repayment commitment by selling assets or increasing sales, a CVA could be right for your company.
You would need to provide evidence to support the company’s ability to keep up with repayments for the full CVA term – typically in the form of detailed sales and cash projections.
Covid-19 has created severe economic difficulties for the business world as a whole, but specific events such as the loss of a key customer or unexpected bad debt, can also send a business off course when it was previously experiencing growth.
If you would like more information on CVAs, and whether they might be right for your company, please get in touch with Fast Track CVA. We’re specialists in this field and can offer you a free, same-day consultation to quickly establish your suitability.