When talking to directors about their company’s financial problems, it is important to remember that they can often become overwhelmed if you provide too much information and too many options. It is vital to provide concise information and more importantly, provide a workable solution for the company’s financial issues.
Recently, I met with a director who had sought advice from another firm. During the course of our discussion, it was obvious that the advice he had been given had left him totally confused as to the best solution to deal with the company’s financial problems. Once the director had explained the problems, it was apparent that the company was viable but had accrued PAYE and VAT arrears and trade debts had started to mount, principally as a result of the company suffering a significant bad debt. It was very clear that the best option for the company would be to enter into a CVA (Company Voluntary Arrangement), sometimes referred to as a Company Voluntary Agreement.
What is a CVA (Company Voluntary Arrangement) ?
Very simply, a CVA is a deal between a company and its creditors to renegotiate the terms of its debts. It will more than likely include rescheduling payment terms and compromising (reducing) the amount payable to creditors.
What are the benefits of a CVA?
- It allows a company to pay a percentage of its debts to creditors over a manageable period of time.
- Each CVA is tailored to fit how much the company can realistically afford to pay.
- It provides creditors with a better return than if the company were to enter administration or liquidation.
- It allows a company to continue to trade with very little effect on the day to day running of the business.
- The directors remain in control of the company.
- The directors are able to concentrate on running the company and return it to profitability rather than dealing with creditors who are demanding payment.
- The core business will probably remain unchanged but it is an opportunity to restructure the business with a view to achieving future profits.
- It can significantly increase a company’s cash flow in a number of ways.
- The company continues to trade with its trade suppliers, although they may make a request for pro-forma or cash on delivery payments for an initial period once the CVA has been approved.
- It allows a company to keep certain contracts and accreditations which would be difficult to transfer to a different company in an administration or liquidation, for example, an electrical contractor’s certification or HGV licenses.
- It allows a company to terminate employee or onerous contracts, thereby reducing the burden on the company’s cash flow.
- There is no advertising of a CVA and no court application making it less public than an administration or liquidation.
Once the CVA has been approved by creditors, everything happens within a predefined period of time. For example, most CVAs consist of regular monthly contributions being made to the supervisors from future income, typically for a period of between 3 to 5 years.
What should you do if you are considering a CVA?
If you are considering a Company Voluntary Arrangement, take expert advice from us as soon as possible. We will provide you with all the information that you need but we will not over complicate matters.
We can answer your specific queries a lot better in person or visit our FAQ page for further information.