If your business is facing debts it simply cannot pay, bankruptcy may appear the only option. However, a CVA (Company Voluntary Arrangement) could provide a way out giving you breathing space from legal action. Allowing you to restructure your debts and enabling you to remain in control of your company.
Here are eight reasons a CVA could be a godsend.
1 You can carry on trading
This is the big one. With bankruptcy, your business is taken over by the liquidator and can soon become history. With a CVA you can continue to trade, even if a creditor has advertised a petition against your company.
2 The Directors remain in control
Whilst the Company Voluntary Arrangement is being implemented and your debts restructured, you can continue to control your company – without any threat of an investigation into your conduct. This means that if your business model is basically sound, you stand a good chance of getting the company back on its feet.
3 You are protected from legal action
If creditors continue to press you for early payment, your firm could find itself facing liquidation. A CVA gives you protection against legal action whilst you attempt to negotiate a settlement with your creditors.
4 You won’t have to discharge your full debts – but creditors will receive some portion of what they’re owed
A CVA can be a win-win situation for everyone. With liquidation, you can find yourself out of business and your ordinary creditors can find themselves with nothing once preferential creditors (such as HMRC and your bank) have been paid. A CVA allows you to negotiate a settlement of pennies in the pound, provided your creditors vote in favour of the deal.
5 You can consolidate your debts
If your business is in trouble, chances are you owe substantial sums to lots of different creditors. With a CVA, you can negotiate a single monthly payment that will be disbursed to all your creditors. This will repay your outstanding debt over a number of years, and will mean that you can concentrate on rebuilding your business rather than fire-fighting as angry creditors press you for payment.
6 You can save a lot of money
Company Voluntary Arrangements aren’t just a very flexible way to deal with debts – they’re also potentially a lot cheaper than the alternatives. Interest and late payment penalties on your debts can soon add up, and you may find yourself having to take out borrowing at extortionate rates. A CVA will give you breathing space to restructure your debts and find a way ahead.
7 You can transform your cash flow
By significantly reducing your monthly outgoings, a CVA will give you a lot more cash on hand. Make sure you don’t over-commit yourself and you should be well placed to begin rebuilding your business.
8 You could even terminate leases or contracts
Whilst this is something of a grey area, case law demonstrates that it is possible to terminate unwanted leases or contracts as part of a CVA. This can give your business a whole new start in new premises – and hopefully a new lease of life!