Updated: 9th September 2021
The primary motivation behind entering a company into a Company Voluntary Arrangement (CVA) is to save to the business and allow it to continue trading long into the future. In fact, a CVA will not be permitted if the business is not deemed to be a viable prospect going forwards. A minimum of 75% (by value) of creditors need to give their consent in order for the proposed CVA to be implemented.
While CVAs are an extremely useful tool for certain companies, this does not mean that the procedure is a panacea to all business ills. While a CVA does result in a reduction of the company’s monthly outgoings and a portion of its debts typically written off as part of the process, this does not mean that the financial slate will be wiped clean.
On the contrary, you will be required to make a monthly repayment direct to the appointed insolvency practitioner who will distribute these funds amongst all creditors bound by the terms of the CVA. It is absolutely vital that this payment is made in full and on time. Once a payment is missed, the CVA is at risk of failing and the future of the business will also be under threat and it is possible that it will be wound up via compulsory liquidation.
CVAs typically last from between one to five years depending on the level of debt involved and the company’s ability to repay. The exact period will be determined during the negotiations between the insolvency practitioner and the company’s creditors and this will be confirmed before the CVA is implemented. Following this, so long as all payments have been made as agreed, the company will be released from the CVA.
What happens following the CVA is determined by a whole host of factors. Once the CVA ends, any remaining debts which were including in the CVA proposal are typically written off. This should put the company in an advantageous position going forward.
Those companies who successfully complete a CVA stand as good a chance as any of bring successful in the future. Although the company’s credit rating is likely to have been negatively affected by the CVA, to all intents and purposes, nothing much will change following the end of the CVA. The company is able to continue to trade and will be boosted by no longer needing to make the monthly payment to the appointed insolvency practitioner.
As the company will have continued to trade throughout the term of the CVA, the hope is that the company’s financial issues will have been addressed and it is therefore able to move on following the CVA to a successful future. Thanks to the uninterrupted period of trade offered by a CVA, the business will hopefully have a solid customer base and ongoing orders with which to continue generating sales and growing as a profitable company.
However, unfortunately not all CVAs are successful. For those companies which fail to complete a CVA – perhaps through missed payments or further financial troubles – the future is not always so promising.
In some instances the appointed insolvency practitioner may look at ways to modify the CVA to allow the company to get back on track with the payments, however, in many instances the company’s financial situation is such that this is simply not possible or else the company’s creditors refuse to provide any more leeway.
It should be remembered that a CVA is a legal agreement, binding on all parties. When one party breaks this, e.g. by failing to make the requirement payments on time, the creditor is then able to pursue the debt and even take legal action if necessary. This action may take the form of a Winding Up Petition which could see the company forced into compulsory liquidation.
If you are in a CVA and have doubts about your ability to keep up with the repayments, it is vital that you speak to the insolvency practitioner supervising your agreement at the earliest possible opportunity. The sooner you do this, the greater the chances of getting the CVA back on track.
If you are considering a CVA for your company, or would like to discuss the alternatives for your company, contact the experts at Real Business Rescue. You can arrange a free no-obligation consultation with one of our licensed insolvency practitioners at any of our 70+ offices across the country. Call today on 0800 644 6080.
13th October 2021
The Bank of England has said it anticipates that rates of corporate insolvency will increase in the coming weeks following the removal of restrictions on winding up petitions.Read More