What is a CVA?
If your business is struggling with debt, it can be hard to see a way out. Bills may be piling up, as creditors chase payments and cash flow gets tighter and tighter each week. It can be a worrying time, but it’s not necessarily the end for some businesses. Just because your business is in financial difficulty, it doesn’t mean it is beyond saving.
Acting early and seeking help as soon as possible can help improve your chances of survival, as the quicker you take action, the more opportunities you’ll have available to your business. One such opportunity for businesses with a viable future is a Company Voluntary Arrangement (CVA).
A CVA is a formal agreement between a company and its creditors that allows debts to be repaid over time while the business continues to trade. It gives companies the breathing space they need to reorganise, restore stability and plan for recovery, rather than closing for good.
How does a CVA work?
The CVA process begins with the company’s directors appointing a licensed insolvency practitioner. The insolvency practitioner will then review the business’s situation to assess whether a CVA is suitable.
They’ll then prepare a proposal outlining the amount the company owes, what it can afford to pay, and the period over which it can pay. Once complete, the proposal goes to creditors for a vote. At least 75 per cent (by value, of those who vote) must approve it for the CVA to take effect.
Once the CVA is approved, it becomes legally binding on all creditors, even secured creditors who do not typically vote on the CVA proposals. While the directors remain in control of the business, they must stick to the terms set out in the CVA. The insolvency practitioner will oversee the agreement and ensure payments are made as planned.
When is a CVA right for your business?
Businesses that are struggling financially but still have a workable business plan can benefit from a CVA. It’s most effective when:
- The business can generate enough income to trade profitably once debts are restructured.
- Jobs and assets can be protected by keeping the company trading.
- The company wants to avoid more severe outcomes, such as liquidation or administration.
However, a CVA isn’t suitable for every situation. If the company has little prospect of recovery or if its debts are far greater than its future earnings, other insolvency options, such as administration, may be more appropriate.
What are the benefits of a CVA?
A CVA can bring real advantages for businesses that need time and structure to recover. Some of the key benefits include:
- Directors remain in control of the business rather than handing it to an external administrator.
- The company gains legal protection from creditor action during the CVA period.
- Debts are repaid gradually, easing cash flow pressure.
- Creditors are reassured that they’ll recover at least part of what they’re owed.
- The business has the breathing space to refocus, rebuild and move towards profitability.
Is your business struggling with debt? Speak to a professional CVA specialist
If you’re worried about your business’s financial circumstances and want to explore whether a CVA could be an option, please get in touch with the professionals at Bridge Newland.
Categorised in: Liquidation News
