CVA – Company Voluntary Arrangement
Running a business can be a challenge at the best of times, but with increased competition in most markets, and the recession meaning people are spending less, it can be even harder to keep a business afloat – particularly if debts are mounting up. Once a business becomes insolvent, it has to take action. A Company Voluntary Arrangement could be the best way of resolving issues with creditors, while allowing the business to continue trading.
Companies can propose a Company Voluntary Arrangement to their creditors, as a method of formally agreeing how long it will take to repay their debts, and how much they are going to repay. If the creditors accept the CVA, and the company that owes the money keeps up with the payment schedule in the arrangement, there are a number of benefits.
One of the biggest benefits of a Company Voluntary Arrangement is that, as long as the business keeps to the arrangement, they are free to continue trading. They are also given protection from any further action by creditors, which can provide the necessary breathing space to restructure the company’s finances, to help the business recover. The amount of debt could be reduced, as creditors are willing to accept part-payment instead of the possibility of receiving much less, if the company stopped trading and went into liquidation. A CVA is typically less expensive than Administration or Receivership, and makes repaying creditors easier for businesses to manage.
A business needs at least 75% of the people it owes money, to agree to a Company Voluntary Arrangement for it to become a legally binding arrangement. Once this happens, the other 25% of creditors are also covered by the Arrangement, whether they voted for it or not. A CVA needs to be a fair offer to creditors, to pay back as much as is possible, while still ensuring the long-term viability of a business. This is why it is important to try and make sure a Company Voluntary Arrangement works for all parties.
While many businesses might see Company Voluntary Arrangements as a last resort, they are usually a much better alternative for companies and creditors, than Receivership or Liquidation. CVAs are designed to give companies some protection while they rebuild their business, and at the same time, make sure that creditors receive a reasonable amount of the debt that is owed to them. You should always get advice on problems with business debt, and whether a CVA may be the appropriate solution, as soon as you possible, to make sure you can take advantage of all the options available to you.
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