We know that if your company is struggling to pay its debts, it can feel like there is no way to relieve the pressure.
Fortunately, under the Insolvency Act 1986, there are provisions that work in favour of companies that require some assistance in making their debts more manageable. In fact you may be able to ease your cash flow problems by committing to a company voluntary arrangement (CVA).
If your company is working hard to fulfil its commitments to creditors but you are falling behind on repayments, contact the advisors at First4Lawyers for a no-obligation conversation about your situation, and how a CVA might help to rescue your business.
What are company voluntary arrangements (CVAs)?
Company voluntary arrangements are a process whereby a company that is struggling to pay its debts is rescued through the negotiation of reduced debt repayments. The mechanism of a CVA is intended to give a fighting chance to companies that require a restructuring of their debt repayments in order to survive.
If your firm enters into a CVA, your company will agree to repay its creditors all or some of the debt you owe them over a fixed period of time. If the creditors agree to your CVA, your business will be able to continue trading.
The first step towards applying for a CVA is to appoint a qualified insolvency practitioner, who will then investigate your finances and calculate how much debt you can pay in a set period of time. The legal professional acting on your behalf must prepare this arrangement within one month of their appointment.
It will be sent to your company’s creditors, and they will be invited to vote on it at a meeting. If at least 75% of your creditors agree to the CVA, then it will be granted and you can begin operations again whilst repaying your debts under the renegotiated terms.
For limited liability partnerships to apply for a CVA, all the directors and members must agree on the details of the CVA.
What are the advantages of company voluntary arrangements?
A CVA brings numerous benefits when compared to other insolvency and debt restructuring options. These include:
- A potentially higher chance of retaining your working relationship with creditors.
- The prevention, in some cases, of a winding-up petition.
- Protection against legal action from creditors.
- The opportunity to retain your existing company structure and management.
- Confidentiality from the public and the media.
- The time and breathing room you need to get your business back on a healthy financial footing.
What are the risks of company voluntary arrangements?
CVAs tend to provide struggling companies with a welcome lifeline, but it is worth bearing in mind that this type of agreement doesn’t always run smoothly. Some of the disadvantages and risks of CVAs include:
- The potential for your main creditor to dictate the terms of your CVA (particularly if one creditor is owed 25% of your debt or more).
- The potential for relationships with stakeholders not in favour of your CVA to become fractious.
- Potential damage to your company’s credit rating.
- Potential legal action against you by secured lenders, such as banks (which are not bound by CVAs).
It is also worth noting that CVAs are only effective when applied for by companies whose business is inherently profitable. If your firm does not expect to turn a profit once your debt has been restructured, a CVA will only delay further problems and as such is not worth the cost you will incur when applying for it.
My company is struggling to make its debt repayments – what should I do?
If your company is unable to pay its debts on time, a CVA could be the lifeline you require in order to continue trading.
CVA applications can only be made by qualified insolvency practitioners. At First4Lawyers, we have access to a team of qualified specialists with a broad range of experience in helping businesses restructure their debts and get on the road to recovery.
Our team can offer the expertise and experience that will ensure you are properly advised on the best course of action for your firm.
To get started with a discussion of your circumstances, with no obligation to use our services later, contact First4Lawyers, or use the Request a Callback form at the top of the screen.
If you are a creditor seeking to recover a debt from a company you believe may be insolvent, you can also contact us to discuss the implications that a CVA might have on your business.