Business Insolvency Turned Around With a Company Voluntary Arrangement
By: Derek Cooper
Submitted: 2010-05-13 14:35:40 | Word Count: 521
Is your business in financial trouble, unable to pay its debt and facing probably closure?
This is precisely the situation that a Company Voluntary Arrangement (CVA) was designed for it is designed to rescue a business where it is unable to pay its debts and is facing closure.
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Firstly lets look at some of its key features which help give the business chance to turn around and become sound again:
Creditors agree to accept a reduced settlement of their debt payable over (typically) a five year period.
Once a CVA is agreed monthly payments to the company creditors will be reduced to an affordable amount.
At the end of this period the rest of the debt (often over 50 ) is written off
Court actions such as Winding Up Petition or County Court Judgements are stopped
Creditors are not allowed to add further interest payments to the debt
No upfront investment is required
Once accepted, all of the company s creditors are bound to the proposal (whether they voted for it or not).
All these things add up to making it a great solution to get the company back on a sound footing and trading debt free.
One of the major questions people ask is:
How much does a CVA cost?
The answer is, that while a fee is payable to the insolvency practitioner who is licensed to implement and supervise the arrangement, this is normally deducted from the monthly payment to creditors. The business simply makes the agreed affordable monthly payment which is distributed by the supervisor on its behalf to the creditors and the fees are taken out of that payment.
This gives the CVA a significant advantage over a pre pack administration or phoenix as a company rescue solution. Pre pack administration will normally require a minimum investment of GBP15,000 in order to buy the old company assets.
A company voluntary arrangement is a private agreement. As such there is no advertisement and no need for clients to be told. In addition, the business is not broken up and key people and teams can remain together.
While there are a number of advantages there are some potential disadvantages which need to be taken into account.
Firstly, how to avoid repeating the same mistakes that got the company into financial trouble in the first place. There is no requirement for the Directors or management team to change, however it may be sensible to consider introducing new ideas by employing a new member of the team. If you just carry on doing the same thing as before, why would you not expect to end up in the same mess?
In addition, having implemented a CVA, the company s credit rating will be affected. This may mean that it will be difficult to obtain additional bank finance while the arrangement is in place.
Despite these potential issues, the advantages of a company voluntary arrangement as a business rescue tool are significant. This is not least because no investment is required to implement the solution. This is a key advantage at a time when cash is almost certainly not freely available to the company.
