One
possible solution for a business facing financial
difficulties is a Company
Voluntary Arrangement (CVA).
This is particularly suitable for a company
that has had a problem which has now been
resolved and although the company is once
again trading profitably, it is being strangled
by debt.
A Company Voluntary
Arrangement is a recognised legal procedure
under the provisions of the Insolvency
Act 1986 that enable a company to enter
into a binding agreement with its creditors
detailing how the company’s
debt and liabilities will be dealt with,
and allows the directors to retain the control
of the company.
In essence a CVA allows a
company with cash flow problems to repay
its unsecured liabilities, including the
Inland Revenue and HM Customs and Excise,
by entering into the binding agreement with
its creditors. The basis of the CVA is to
repay what the company can afford-which can
result in either a part or full repayment
to creditors- over a fairly long period of
time, usually 2-5 years. Typically, once
the company’s liability has been restructured,
any monies generated or owed to the company
can be used as working capital rather than
to pay its old debts.
A company with cash flow problems will be juggling
every cheque it receives in an effort to stay
within its overdraft limit, pay its creditors,
maintain supply, and on top of this pay overheads
and salaries. In a CVA current income and debtors’ payments
can be used to take the company forward, whilst
maintaining monthly repayments on old liabilities.
This type of arrangement can provide a large
injection of free and available new working
capital.
Companies will also feel that the
air of doom and gloom has been lifted from
the workplace. The key advantage of a CVA is
that the directors are free to continue to
run their business, the employees keep their
jobs and creditors will be in a better position
than if the company had gone into liquidation.
How is a Voluntary
Arrangement implemented?
A
CVA requires the approval of 75% of the voting
creditors. If approved, the CVA binds all
creditors who were sent notice of the meeting,
irrespective of how they voted.
How much does the
company repay its creditors?
Having reviewed the
financial position and the company’s
prospects the directors (and to some extent
the insolvency practitioner) calculate what
the company can afford to pay, normally on
a monthly basis, into a fund which is supervised
by the insolvency practitioner. |
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Will the bank,
VAT and Inland Revenue support the CVA?
Provided that the proposal
of repayment that is put forward is reasonable
then normally these creditors are prepared
to accommodate the CVA. However the crown
creditors will only support an arrangement
if all VAT and tax returns are up to date.
Will suppliers
still supply the company?
Even though most creditors
say otherwise, under most circumstances suppliers
will still supply to a company in CVA. Remember
that these companies also have cash flow
requirements and generally cannot afford
the luxury of turning down business.
For further information for company directors
see Directors
Responsibilies
Take advice, call our
advisers on 0800 881 8879 (FREEPHONE)
or email us at: debtadvice@24-7finance.com .
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Company Voluntary Arrangement (CVA)
