Could a CVA work for your business?

Recently, the company voluntary arrangements (CVAs) of many large, distinguished retail businesses have dominated the media. Nevertheless, companies do not need a large property portfolio to take advantage of a CVA. So, what are the benefits of this process and how can owner-managers establish whether one is right for their business?

How does a CVA work?

A CVA occurs when a company facing financial difficulties comes to an agreement with its creditors to pay back all or some of its debts over an agreed length of time. During this process, an insolvency practitioner oversees and supervises activities and reports to the creditors. Companies which are struggling to pay historic creditors but have underlying profitability should consider this option as a means of recovering from financial adversity.

Is a CVA right for your business?

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Unlike other insolvency options, the CVA allows owner-managers to maintain control over their business; they can develop and continue relationships with customers and suppliers whilst keeping the company trading. However, because CVAs are not a one-size-fits-all solution, prior to making a decision it is vital to discuss all possible solutions with a licensed insolvency practitioner.

Before undertaking a successful CVA, it is important to be realistic about what is likely to be achieved. There is often a tendency for owner-managers to have a rose-tinted perspective on the prospects for their business. This can sometimes fuel over-ambitious agreements with creditors or lead to a lack of a clear plan for keeping up with cash contributions.

If the company fails to keep up with creditor payments, it may find itself in another insolvency procedure further down the line. Therefore, it is essential owner-managers are committed from the start to maintaining the long-term performance of the business.

Communicating with the supervising insolvency practitioner is extremely important to highlight any potential upcoming issues, so that a solution can be found before it is too late. For example, if the business is struggling to make payments, creditors may agree to extend their payment terms.

CVAs aren’t exclusive to high street giants. With the correct expert advice and a commitment to making the arrangement a success, they can enable owner-managers to keep their business running, while delivering value for creditors.

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