If your business can’t pay its debts, a company voluntary arrangement (CVA) can allow you to continue trading. But what is a CVA?
It’s important to understand how these arrangements work to help you decide whether it’s right for your business. Here’s what you need to know.
What is a company voluntary arrangement?
A CVA is a formal process that allows insolvent limited companies to enter a compromise with their creditors. You can use a CVA to pay your company’s debts back over a fixed period of time — but your creditors will need to vote on the arrangement first.
If a 75% majority approve your application, your company will be able to continue trading. You and your creditors are then legally bound to the terms of the arrangement and you’ll usually need to make monthly contributions to pay off all or part of your company’s debts.
What are the benefits?
A CVA is a common insolvency solution for companies struggling with debt, particularly for those that are still viable. If you’re a company director, a CVA can give you more control over your business and help you avoid closing the company down.
For creditors, entering a CVA is often more worthwhile than forcing a company into liquidation. They may be able to receive more money back in the long run — and could end up trading with a viable business further down the line.
Eligibility
You need to show that your business is a “going concern” to qualify for a CVA. Producing cashflow forecasts and demonstrating that you use accurate financial reporting systems can give your application a better chance of success.
As financial experts, we can help you gather the information necessary for your CVA application.
How to apply for a CVA
A company or limited liability partnership (LLP) can only apply for a CVA if all the directors and members agree to it. You’ll need to get your CVA through an insolvency practitioner who will charge you for your application and administer it.
Once appointed, the practitioner will have one month to work out an arrangement covering:
- the amount of debt you can pay
- a payment schedule
They’ll then write to the creditors about the arrangement and invite them to vote on it.
As mentioned, if 75% or more of the creditors who vote agree, your CVA will be approved. You’ll then need to make scheduled payments to creditors until the agreed amount is paid off.
What happens if the CVA is not approved?
If less than three-quarters of the creditors vote to approve the CVA, you may need to liquidate your limited company.
Liquidating or “winding up” a company means it no longer exists. Your business will be struck off from the companies register and its assets used to pay off its debts.
Get the right support
Dealing with business debt can be stressful, but we’re here to support you if you fall on hard times. We’ll offer guidance on how to manage your company finances through in-depth business planning and corporate tax strategies.
We can also put systems in place to help you protect your business and avoid similar problems in the future.
Talk to us to discuss applying for a company voluntary arrangement for your company.