Company Voluntary Arrangements (CVAs), Administration and Insolvency
We know that there are companies who go through difficulties and think about the next stage being a Company Voluntary Arrangement (CVA) and administration. A CVA is when there is a voluntary arrangement with creditors, where it is agreed that there are circumstances in which the business are able to pay its debts off over time whilst turning its business around. Creditors are usually happy to assist with a CVA as the alternative is to liquidate all assets and the fallout will be a small repayment (if any) of the creditors.
A CVA is only a possible option if the company is insolvent but has the ability to carry on operating. The process will be legally binding on all creditors if there is approval by 75% of the creditors relating to the business. The main aim of the creditors is recovery of their debts and therefore rescuing the business.
How is a CVA initiated?
A CVA can be started by a liquidator, administrator or company directors after there has been a decision to enter into a CVA and a Licensed Insolvency Practitioner will commence the process. The company will be analyzed and a proposal set out; once agreed it will be entered into.
The advantages of a CVA are:
- The business is protected from negative or detrimental action being taken by creditors
- A legally binding solution
- Directors can start a CVA and their conduct is not investigated
- Directors are provided with more time to turn the business around without fear of legal action
- Usually creditors will support a CVA, so that they can assist in rescuing a business
- Structured payments are implemented in order to make them easier
- It is an insolvency solution that can resolve financial difficulties
- When dealing with debt and insolvency, it is perceived as a positive way of dealing with debt
- The business is able to carry on trading, and attempt to stabilise
- The business is given breathing room to restructure the organisation and return to profitability
- Cheaper than other insolvency solutions
A CVA can be a process decided by an Insolvency Practitioner under an administration process. Administration is usually the route to go down where a company cannot pay the money it owes. The benefit of the administration process is that a business is protected from people applying to wind up the company and from legal action by those who are owed money. It may be the case that the process leads to the company being wound up and that all existing debts are partially paid, but it all depends on the circumstances of the company.
After the more informal arrangements above are exhausted, insolvency may be the process that is necessary, where a company finds that it can’t meet its financial obligations when debts become due and assets are liquidated to pay off outstanding debts.
Courtesy of – CashSolv.co.uk for the following infographic on the CVAs and HMRC, which you may find useful!
How we can help
It is always worth discussing whether we can assist with financing or if it is deemed that the situation has moved along and a CVA or other insolvency process is the best option then we are always on hand to assist with the best people.
Benefits of Company Voluntary Arrangements
- Board members and shareholders normally remain in control of the organisation
- LCVAs have much lower costs than receivership
- A CVA is often a much less public event than administration. Customers do not need to be informed of a CVA.
- Good for creditors as they retain a customer and receive a dividend on their debts.
Frequently Asked Questions
- Letters of Credit Demystified: Who? What? Where? When?
- What is trade finance in banking?
- Pre Export Finance – What is it and how is it used?
- GUIDE: General Agreement on Trade in Services (GATs)
- What is a trade loan?
- Bills of Exchange versus Promissory Notes – What’s the Difference?
- What is MT799?
- Trade Finance and the Law
- What is the trade finance process?
- Recourse or Non-Recourse Factoring – Which is the best option for my company?