For more information on how to enter a CVA and whether your company is eligible, please call our partner-led team at Fast Track CVA to arrange a free same-day consultation. We specialise in helping businesses to restructure their debt, and trade towards a brighter future.
A Company Voluntary Arrangement (CVA) offers a number of advantages to businesses experiencing temporary financial difficulty – companies that are viewed as viable for the long-term given a little ‘breathing space’ and opportunity to restructure.
Here, we consider how directors, the company, and its creditors might benefit from entering into a Company Voluntary Arrangement.
So, what are the main differences between a CVA and company administration?
Retain control of the company
As a director you retain control of your company, which means you can implement any plans for growth without the relentless pressure from creditors whilst also repaying a proportion of the company’s debts.
Costs less than some other insolvency procedures
Company Voluntary Arrangements typically cost less than other formal insolvency procedures, such as company administration. Additionally, professional fees for setting up the arrangement are included in the monthly payments, rather than the company having to pay upfront.
Don’t have to inform customers
CVAs are less public than some other insolvency measures, as you’re not obliged to inform your customers or clients about the new arrangement.
No investigation into director conduct
Following a company’s liquidation, the office-holder always investigates director conduct during the time leading up to insolvency. This isn’t necessary with a CVA, so there’s no risk of disqualification.
Protection from creditor legal action
The company is protected from legal action by creditors, including winding up petitions and liquidation. HMRC are known to take fast action against indebted companies they believe to be insolvent, so this can be particularly reassuring for companies with tax debts.
Continuation of trade
A huge benefit of a CVA is that the company can continue to trade. Customer service carries on as normal, and with a new arrangement in place directors’ focus can be placed on improving sales rather than dealing with creditors, or firefighting issues connected with the company’s financial situation.
Can terminate onerous contracts
Onerous contracts that are no longer beneficial to the company can be terminated as part of the terms and conditions of a Company Voluntary Arrangement – these might include unaffordable/high cost property leases, for example, or employment contracts. Conversely, the company can retain beneficial contracts and accreditations.
Improved cash flow
One of the major advantages of a CVA for companies in financial distress is that additional interest and charges on their debt is frozen. Additionally, a single monthly repayment replaces the multiple payments to individual creditors, which also improves cash flow.
Debts can be written off
A CVA allows companies to repay a proportion of their debts and write off any remaining debt at the end of the term. This allows directors to plan ahead financially and budget effectively without the burden of debt.
CVAs typically provide a better return for creditors than other insolvency procedures, such as liquidation, even though a proportion of the debt may be written off at the end of the arrangement.
Fast track CVA means repayments start quickly
A fast track CVA speeds up the ‘standard’ process so that, not only does the company benefit, but creditors also start to receive their payments rapidly. Fast track CVAs are particularly advantageous for agile and streamlined small and medium sized businesses that can change course quickly when necessary.