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Many companies suffer under the burden of debt with many believing the only option is to place the Company into Liquidation. But that isn’t always the case. If a Company is struggling to pay its debts as and when they fall due, but has a viable business, that with effective management of existing debt and breathing space to restructure, then a Company Voluntary Arrangement (“CVA”) is a viable option. That said, the longer the Company continues to trade without seeking advice from a licensed Insolvency Practitioner, the more likely a Liquidation is to follow. A CVA is a formal business recovery option designed to help insolvent companies continue to trade. The process is initiated by the Directors of a Company and with the assistance of a licensed Insolvency Practitioner can freeze historic debt, with a view to reaching an agreement on how creditors will be repaid. If it can be shown that creditors will receive a better outcome from agreeing to a CVA than they would receive from a Liquidation, then there is a good chance that an agreement can be reached.
What are the advantages of a CVA?
A CVA is an excellent tool for business recovery and turnaround as it protects the Company from creditor pressure. Other key advantages are: • It is a legally binding agreement the Company and its creditors • The Directors retain control of the business whilst the Arrangement is under the control of the Insolvency Practitioner, known as the Supervisor.
• The Company continues to trade
• There is no need to make the public aware of the CVA
• It centralises your creditors into one monthly payment
• CVA’s can quickly improve cash flow
• The amount the Company pays back is done by way of instalments and generally lasts for a period of 5 years
• Pressure from creditors including HM Revenue & Customs stops for historic debt
• It prevents legal action against the Company as long as the terms of the arrangement are adhered to
• There are no investigations into the conduct of the Directors or the Company affairs
• it provides breathing space to restructure the business and gives allows every possible chance of success.
Who can make a CVA Proposal?
The Proposal can be made by:
• The Directors where the Company is not in Liquidation or Administration
• By the Administrator if the Company is in Administration
• By the Liquidator where a Company is in Liquidation The Proposal made can be on any basis if agreed by creditors but will generally include delayed or reduced payment of debts, disposal of assets or capital restructuring which will all be subject to an agreed time scale as detailed within the Proposal.
Is my Company eligible to propose a CVA?
In order to benefit from utilising a CVA to assist with your turnaround there are some key points to consider:
• The Company must be insolvent • The Insolvency Practitioner and the Directors must be confident that the business has a real prospect of turnaround and recovery
• The Company should have projected cash flow forecasts that demonstrate there is sufficient capital to make repayments as agreed and to continue trade
• It requires approval of 75% of creditors who vote
What are my next steps?
If you feel that a CVA is a viable option for you and your Company, you should contact a Licensed Insolvency Practitioner. At Lines Henry, we assess each business on its own merits and can provide clear, precise advice on your own circumstances, working with you to reach the best solution for you, your Company and its creditors. To start your business turnaround and see how a CVA can benefit you, call today and speak to one of our Insolvency Practitioners – 0800 012 6649