Updated: 5th February 2021
For companies dealing with unmanageable debt problems, Company Voluntary Arrangements – or CVAs – may appear to be the perfect solution. A CVA allows a company to enter into an agreement with its outstanding creditors to pay back the money owing through a series of affordable monthly instalments. In theory, a CVA allows a business to continue operating, giving the company valuable time and breathing space to trade its way out of financial difficulty. However, things are not always this simple.
CVAs are not suitable for every business in trouble; in fact for the vast majority of companies struggling with financial problems, outstanding creditors are typically unwilling to enter into such an agreement. In order for your CVA to be implemented there must be evidence, not only that your company can keep up with the monthly repayments, but also that it has a profitable future should its current problems be rectified. Unless you can convince both your insolvency practitioner and your creditors that this is the case, your plan of entering into a CVA is unlikely to get off the ground.
Getting a CVA approved can be difficult, so if you are successful in having one approved, you should do all you can to keep up with the agreed payments as CVAs give a company the best possible chance of recovering and turning their situation around.
CVAs are designed to be affordable to your company and tailored to your situation. Before submitting the proposal to your creditors, the amount your company can afford to pay back will be carefully calculated in order to come to a figure which is manageable for you, but also enough to satisfy your creditors. However, what happens if after having the CVA approved you find the payments too expensive and you cannot afford to keep up with the terms of your CVA?
If your CVA fails, or you are anticipating the possibility of it failing in the future, you should make the insolvency practitioner administering your CVA aware of your problems at the first available opportunity. Depending on your circumstances, how you have managed your CVA in the past, and how severe your current problems are, it may be possible to renegotiate the terms of the agreement. This could involve lowering your monthly repayment amount in order to lessen the pressure on your company. Be aware this will typically increase the length of time your CVA will run for, and it may be rejected outright by creditors who may feel that they have already made enough allowances for your company.
If your creditors do not agree to the proposed amendments to the CVA and you fail to make the agreed payments, it is likely your CVA will be terminated. Should this happen, or if you have come to the decision yourself that the company is unable to carry on with the CVA, you will need to take a realistic and objective view of your company in order to devise a plan for the future.
If the company is still heavily indebted and you cannot see the situation improving, you should contact an insolvency practitioner as you may need to look at ways of closing down your company if all possible rescue attempts have been exhausted. Once you are aware that your company is insolvent, you need to place the interests of your creditors above those of yourself and your fellow directors. This means you should not continue to trade or to get the company into any further debt.
It is likely that, if a CVA has failed, closing the company will be the only viable option. An insolvency practitioner will be able to talk you through what this process entails and what it will mean for you going forward. Our extensive office network comprises 100 offices across the UK with a partner-led service offering immediate director advice and support. Call our expert advisers today to arrange a free no-obligation consultation and learn more about the options available to you and your company.
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