Updated: 29th March 2021
If your company is struggling under the weight of existing creditor obligations and increasingly restricted cash flow, you need to take swift action if you want to save your business from closure.
Sometimes financial problems are caused by poor cash flow which can be solved through a series of small operational changes or by sourcing appropriate finance, while other situations may stem from more deep-rooted problems which call for a more extensive restructuring of the company.
The first step is to determine whether the business has a chance of being a profitable entity based on its current performance. In many cases a business is generating healthy sales but the company is experiencing cash flow issues as it struggles to keep up with its existing liabilities. Often this is debt which has built up over time; so while the business is able to afford its day to day running costs, it is this historic debt burden which is causing financial problems.
In this instance it may be possible to restructure these obligations through a formal process known as a Company Voluntary Arrangement (CVA).
A CVA functions as a formal payment plan which a company enters into following the acceptance of their creditors. A CVA proposal will be drawn up by a licensed insolvency practitioner who will then present this to the company’s creditors with the intention of reaching a mutually agreeable plan of repaying existing debts.
In the majority of cases this will involve a portion of the debt being written off, with the rest paid back through a series of affordable monthly instalments. In theory, this arrangement benefits the company as the repayment amounts are typically low enough to result in significant improvements to cash flow, while the creditors also stand to recoup more of the money owed this way as opposed to the indebted company entering liquidation.
In order to appease both the creditors and the company applying for the CVA, the appointed insolvency practitioner must carefully assess the company’s liabilities as well as its ability to repay them, and propose a plan which is fair to the creditors while being manageable for the company to keep up with.
When it comes to negotiating an agreement, no two CVAs are the same. This is because there are a number of factors involved when calculating an appropriate monthly contribution, including the extent of the liabilities, who these debts are owed to, and the company’s future cash flow projections.
However, what all CVAs have in common is that it is in the interests of everyone involved that the arrangement is a success as the likely alternative outcome would be the eventual liquidation of the company, typically resulting in little in the way of creditor returns. Due to this, any agreed monthly repayment amounts will not be designed to be too onerous on the indebted company, although they will need to be at a great enough level to satisfy creditors.
If you believe a CVA could be the solution to your company’s financial worries, your first step is to contact a licensed insolvency practitioner who will be able to assess your current situation and advise whether a CVA is appropriate. If it is decided that a CVA is suitable, your insolvency practitioner will work to propose a plan to your creditors and will act as supervisor for the duration of the agreement.
Real Business Rescue’s nationwide team of licensed insolvency practitioners can provide you with the help and advice you need if your company is experiencing financial difficulties. They will take the time to go through the various options which may be open to you, including CVAs, before advising you as to the best way forward for you and your company. Call 0800 644 6080 to arrange a free no-obligation consultation at any one of our 70+ offices.