Does this sound like you?... “We have put everything into building our business, but it has not been easy and we are struggling to keep up with creditor payments. What can we do to get back to running our business, without the constant cash flow pressure?"
If you recognise this situation and are suffering cash flow problems, it sounds like you could be insolvent and would really benefit by talking to us about a Company Voluntary Arrangement, usually known as a CVA.
A Company Voluntary Arrangement is a one off legally binding agreement with your company's creditors, whereby the creditors agree to be paid what the company can afford, not necessarily what is owed and to write off the balance. Under a CVA you will keep control of your company and continue to trade as normal.
The Company Voluntary Arrangement ensures that the amounts owed to the unsecured creditors are legally frozen, thereby allowing you to concentrate on moving the company forward.
Even if you have already been threatened or served a winding up petition against your business, then you still have time to set up a CVA if you act fast.
Read our case study to see how even when a winding up petition has been presented against a company, it is possible to use a CVA as an alternative to Liquidation.
Low cost process
No need to borrow more money
A flexible legally effective business recovery tool
The business can continue trading without a change in ownership
Existing personal guarantees are protected
Provides protection to the company from any legal action by creditors
Realistic repayment structure
No cash cost if redundancies required
Reduces cash flow pressure
An opportunity to restructure the business, removing unprofitable areas Historic debts crystallise, so no additional interest is incurred
The balance of unaffordable debt is written off for good
In addition to these advantages, a Company Voluntary Arrangement can allow for a business to be sold or refinanced or is beneficial for companies that need to retain certain contracts which cannot be transferred.
The entire process of putting a CVA in place is around 6-8 weeks. It will usually take a month, following the decision to put forward a proposal to creditors, to conclude the approval process.
Following your initial free assessment with a practitioner a CVA proposal will be drafted to present to creditors and shareholders. The Directors of the business will review the proposal and revisions can be made if necessary.
The CVA proposal will then be filed with the Court and copies will be issued to each of the creditors at least 3 weeks prior to the Creditors’ and Shareholders’ meetings. During the meeting the creditors will vote to approve or reject the proposal. If 75% or more creditors are in favour then the CVA, and 50% of shareholders then the proposal will go ahead.
After approval from creditors and shareholders the appointed practitioner will issue a report outlining the result of the meetings to the Court within 4 days. Once the CVA is approved any legal action against your company will be frozen and the term of the CVA can begin with regular payments being made into a trust account for distribution to creditors.
The usual maximum term of a CVA, based on regular payments is 5 years, but can be shorter, depending on the circumstances. A three year term is typically what is sought, but is subject to what can be afforded and making the proposal attractive to creditors.
Regular reviews of the company’s financial position and the performance of the CVA can ensure the business remains on track.
Read our case study to hear how one firm’s review showed they were able to continue trading a year on without the pressure of the historic debt, and the directors were able to focus on implementing their strategy to increase sales and profitability.
But what happens in cases when CVA contributions become unaffordable?
Read our case study to find out how we helped the directors of a book publishing company when their CVA contributions were no longer affordable.
This is the expense of instructing a qualified Insolvency Practitioner to act on your behalf. It will vary by case complexity and the firm that you choose to act on your behalf. On average across the industry this cost typically starts at between £3-10,000.
This is the arrangement cost and includes collecting the monies due, agreeing the claims of the creditors and paying them regular dividends. These costs also vary significantly, but usually start from around £2,000 - £3,000 per year.
Both of these fees paid out of the trust account and are agreed by the creditors and Directors.
There is no extra cost to you as they are included in the calculation of the affordable payments and they are also typically lower than the alternatives, so creditors also benefit. In reality the costs can easily be borne out of the savings made in not having to pay all creditors on normal terms. Compared to other forms of business recovery a CVA is much better value for you and the creditors.
No, they probably will not even know about the CVA, unless you choose to tell them. Even if they did find out, the risk of losing them is very small as most customers just want to make sure you will not let them down and you can point out the CVA puts you in a better position than when you had creditors hassling you all the time and that you are now able to spend more time focussing on their needs, rather than juggling creditors.
As much as they will be disappointed that you are unable to pay them in the normal course of business, the fact is that under the CVA you will be able to pay them something and they may also have a continuing customer.
In the short term they may require cash up front, which can be sourced through not having to pay existing debts, but typically this is relaxed fairly quickly once they see you operating normally. If you are concerned about specific creditors, we will help you to liaise with them in advance of the formal documentation arriving on their desk, to explain the situation and the benefits of the CVA to them.
Employees will typically be relieved that they can see a future for the company. If an employee does resign, they will lose their employment rights and will not receive any redundancy, or payments in lieu of notice. By resigning they may also lose their right to certain state benefits. Employees will therefore, normally be supportive.
An added benefit is that this positive attitude can also be utilised to get them to up their game and make the business more efficient.
The banks are desperately trying to avoid their own bad debt and bad publicity, so unless there is an overriding compelling reason to stop the CVA they will normally be happy to sit in the wings and allow it to proceed. The bank is usually a secured creditor and will remain so during the CVA. Getting the bank ‘on side’ is simply part of the work we do at the early stages of preparing for the CVA.
NO! The court would rather the company entered into a CVA than go into liquidation, so if there is a reasonable prospect that CVA proposals would be approved by the company's creditors, it is relatively easy to get a winding up petition adjourned until after the CVA is approved and then dismissed.
Within a CVA directors retain control of the business.
Directors have a legal duty to act properly and responsibly and to prioritise the interests of their creditors. The risks of liquidating a business may include disqualification from acting as a director of other companies and also personal reputation as a director. In an extreme case directors can be found personally liable to contribute towards the shortfall in payments to creditors. However, as a Company Voluntary Arrangement is in the best interests of creditors, there is no investigation into the director’s conduct.
Under a Company Voluntary Arrangement directors are not personally liable for the company’s debts, unless they have given a personal guarantee. Even if a director has provided a guarantee, a CVA will mean a director is only liable if the company cannot pay and by continuing in business there is a retained a source of income.
Here are some additional guides you may find useful:
What is a CVA?
Company Voluntary Arrangement v Prepack or Phoenix liquidation
Advantages of a Company Voluntary Arrangement
Disadvantages of a Company Voluntary Arrangement
Company Voluntary Arrangements your questions answered
Call today 01489 550 440 to speak with an independent advisor and we can help with any questions you may have.
Whether a Company Voluntary Arrangement is right for you will be a personal decision based on what’s important to you and the facts around your business. Having been through a massive economic downturn over a number of years, many businesses have a legacy of debt built up over those tough years. Whilst the economy is not quite steaming ahead, now is the time to prepare for the future, by dealing with the legacy of the past.
A Company Voluntary Arrangement is a restructuring tool that is perfectly designed to deal with this situation. It enables companies to move forward with a cleaner balance sheet and ready for growth. It is often compared to a ‘Prepack’, or a ‘phoenix liquidation’, which are alternative approaches, but which have other implications. To explain the differences we have prepared a summary of the implications of both procedures.
The most important thing when faced with financial distress is not to do nothing or put it more simply…to do something. Whether you need the benefits of a Company Voluntary Arrangement to help you or whether you can put a plan together without a CVA, either way positive action is required.
The companies that rely on an improving economy to correct their balance sheets and deal with their historical debt are likely to fail, or are in for a very long haul, with little financial reward and an uncertain future.
We would never encourage anyone to make an important decision without being clear on the options available and the implications. We offer a free no obligation meeting before any commitment is made, so that you can make the decision that is right for you and your business. We are licenced, regulated and professionally insured to carry out a CVA on your behalf and guarantee that you receive genuine impartial advice as to what is the best course of action for you.
When the cashflow problem is immediate, there is no ignoring it. Contact us now to find out if a Company Voluntary Arrangement is right for you so you can get back to making your business work - the way forward, made brighter.
Call your cashflow expert now on 01489 550 440
Alternatively, we can call you at a convenient time to suit you. It's FREE advice, it's totally confidentialy and you are under no obligation.
For further information on Company Voluntary Arrangements, download our PDF Guide to the CVA process or view our relevant pages:
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