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A number of companies are struggling financially in the current economic downturn with cash flow problems and mounting pressure from creditors. If it looks like you are facing insolvency, particularly where there is a large debt burden, a company voluntary arrangement (CVA) may be a good solution to affect a business recovery.

Historically a number of creditors were sceptical or resistant to CVA’s due to having to write off debt, but recent publicity of well known companies including JJB Sports plc, Focus DIY plc and Black Leisure has made them more receptive to consider the proposal. HMRC debts such as PAYE and VAT can also be included in this solution.

A company voluntary arrangement is a formal legal agreement with the company’s creditors to settle the business’s debt. It lasts for typically five years, during which time the creditors accept reduced payments towards the debt based on what the business can pay. All creditors get chance to vote on the arrangement, but if 75% by value agree then all creditors are bound to the legal arrangement. When the period is over, the creditors write off any outstanding debt and the business is able to continue trading debt free. Frequently over 50% of the debt is written off.

Advantages for your Business

- Once a CVA is agreed payments to the company creditors will be reduced to an affordable amount.

- At the end of the agreement any unpaid debt is written off.

- No upfront investment is required to implement a CVA. Fees charged by the insolvency practitioner are taken from the monthly payments made by the company. Directors do not have to raise any additional funds to pay fees.

- A CVA is a private agreement. Suppliers and customers do not have to be told of the company?s situation.

- Any legal actions currently being taken against the company such as county court judgements or winding up petitions will be stopped. Creditors are not allowed to start new actions once the CVA is in place.

- Because the company remains trading, there is no need for the involvement of a liquidator. As such, there is no investigation into the conduct of the directors which could lead to accusations of wrongful trading.

Advantages for the Creditors

Why would any creditor want to agree to a solution where they have to write off a significant portion of the debt!

- Creditors get a far better return than if the company was liquidated where they are likely to get little or no return.

- Suppliers can maintain ongoing business with the company. In these troubled times a supplier will be reluctant to lose a customer.

Getting the Company Voluntary Arrangement in place is not the end of the challenge. With historic debts reduced to manageable levels, the fortunes of the company still need to be turned around so that “history does not repeat itself”. Very often an injection of new ideas and tough decisions will need to be made in order for the CVA to be a long term success.

Clearly a Company Voluntary Arrangement is one of the Business Recovery and rescue tools that can give breathing space to get a business back on a sound footing.

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Derek is Managing Director of Cooper Matthews Limited. Why not talk to us about whether this could be a solution for your situation. More details at http://company-debt.co.uk/cva-company-voluntary-arrangement.html Cooper Matthews specialise in Business Debt Advice offering straight forward insolvency advice for businesses with financial problems.

Tags: arrangement, Business, company, debt, financial, insolvency, trou, voluntary