A Company Voluntary Arrangement (CVA) is a formal agreement made between the company and its unsecured creditors. It can be used as a way for a viable business to repay its debts whilst continuing to trade and can also be used as an exit strategy for a company in Administration. By entering a CVA the company can avoid liquidation proceedings and continued creditor pressure.
A CVA allows a company to pay one affordable monthly repayment, which is then distributed out to the Creditors by the supervisor (a licenced Insolvency Practitioner). The amount that is repaid over the full term of the CVA could be the full amount owed, however it can be agreed that the amount repaid is a percentage of the total amount owed and any debt outstanding at the end of the agreement term is written off.
CVA’s can run for varying time periods but on average a CVA will last from between 3 to 5 years. Once the end of the CVA term is reached the company will then be debt free.
When is a CVA the right choice?
A CVA can be used to help companies in numerous situations, including;
- If you want to avoid insolvency procedures such as liquidation
- The underlying business is viable, but the historical debt is causing cashflow issues
- You have been unable to reach informal arrangements with your creditors directly
- If you want to keep control of the day to day running of the company
Advantages of a Company Voluntary Arrangement
- Allows the company to continue trading
- Stops creditors taking further legal action against the company, therefore providing the company with protection from creditor pressure
- Interest and charges are frozen on the debts within the agreement
- New/future funding can be easier to raise in a CVA than post administration or liquidation
- Only need to pay one affordable monthly repayment to the Insolvency Practitioner
Disadvantages of a Company Voluntary Arrangement
- If the company fails to maintain the repayments, as agreed in the arrangement, it will most likely result in the compulsory liquidation of the company
- It can have a detrimental effect on the credit rating of the company
- The rules of the arrangement are quite strict, and you will be subject to them for the entirety of the agreement (on average 3-5 years)