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How and When to Apply for a Company Voluntary Arrangement (CVA)

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We can help with serious company debts, HMRC and creditor pressure, VAT/PAYE/Tax arrears, cashflow problems and raising finance.

How and When to Apply for a Company Voluntary Arrangement (CVA)

One of the problems which many business owners or the boards of directors encounter is in knowing just when it is time to get help. The books are not looking good, taxes are in arrears, suppliers and creditors are calling for payment and there just isn’t enough coming in at the moment to pay those debts. Although a company in this situation may not as yet be insolvent, it is very close to being so and this is the time to get help and get it quickly!

Insolvency Is the Key

One of the most important ‘rules’ in regards to a Company Voluntary Arrangement is that a company must be either insolvent or at risk of imminent insolvency. Obviously, if you can’t pay your debts and taxes you are most likely already insolvent, but there are times when you are able to meet some, but not all of your financial obligations. So, when is insolvency imminent and when is it time to seriously consider making company voluntary arrangement with your creditors, including HMRC.

Things to Consider

When trying to get to the bottom of the financial state of a business, it is much simpler if you understand what you are looking for. Unfortunately, sometimes things are so bad that you just don’t know where to start. Here are four areas to take a good, long look at if you are undecided if your company is insolvent or on the verge of being so. Gather all, or as many, records as you can from banks, creditors, HMRC and debtors. Whilst there are other documents and books which will eventually be analysed, this is a good place to start.

  • Analysing a Company’s Bank Records – Probably the best place to begin taking stock of your financial status is to look at your bank records and communications. For example, if your company’s overdraft is always at its limit and the bank is refusing to give you an increase, this is probably a good indicator that your finances are in bad shape. Does your bank refuse loans and/or ask for extra securities? Perhaps your company’s bank is even asking that you use your personal property and assets as guarantee/security. All of these things indicate that your company’s credit is not what it should be and the bank either believes your company is insolvent or soon to be so.
     
  • Status of a Company’s Credit with Suppliers – First and foremost is your ability to pay creditors in a timely manner the amount due. If cashflow is a problem then this could very well be indicative of insolvency or impending insolvency. Creditors are not likely to extend your credit limits if they have not been paid in a timely manner which in turn makes your company even less viable at the moment. If legal actions have been brought against your company and you have been robbing Peter to pay Paul thinking to pay the most urgent debts, it is time to consider a CVA. Receiving ‘pay now or else’ letters repeatedly and having bailiffs on your doorstep are not good signs either.
     
  • Tax Affairs – Whether it is simply a matter of not having responded on time to Companies House or being in arrears with HMRC, this is a sure sign that a business is insolvent. Of course, being delinquent means that your business will incur penalties but a CVA enables a company to get up to date with HMRC.  Once a company enters a CVA it must keep up to date with all its post CVA HMRC payments.
     
  • Uncollected Debt –Another test to help to determine whether or not a business is insolvent is in the amount of uncollected debts due to that business. Clients may not pay on time and in many cases management just doesn't know exactly how much is truly owed to the company. In fact, some companies do not have a dedicated debt collection department so the books are quite imprecise as to exactly who owes how much and when it was due. If a business’ invoices are so out of control that a company isn't sure how much money is owed to them chances are good that this company probably is insolvent and in grave need of input from an Insolvency Practitioner.
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These are just some of the warning signs and key indicators which should tell you when your business is insolvent or on the brink of insolvency. In reality, there are many other factors which an IP will look at to determine whether or not a CVA is the right course of action. However, if your company meets much of the above criteria, it is time to think about contacting a specialist in order to get the ball rolling to propose a Company Voluntary Arrangement.

A Brief Summary of How to Propose for a CVA

Technically, the hard part is determining whether or not a CVA is right for your business. From the very beginning the directors and/or the owner should contact a licensed Insolvency Practitioner because this will be the only person the courts recognise as being able to handle a CVA. When an Insolvency Practitioner is chosen by the company's directors to act on their behalf, he or she is known as the nominee.

At this point the nominee will be able to explain to the directors the exact steps to be taken and what the requirements are in order to be eligible to propse a legally binding CVA. The IP/nominee will oversee the entire process from meeting with the board of directors through to formulating a plan and presenting this to the creditors. The IP will have a meeting with creditors and will be the liaison from this point forward. It is up to the IP/nominee to make absolutely certain that all steps are followed to the exact letter of the law.

In short, if the business has a cash flow problem and is unable to pay its debts or is delinquent in reporting or paying HMRC, it is time to call for help. It is an Insolvency Practitioner's job to know whether or not it is time to propose a CVA and how to go about doing it. The key is in knowing whether or not a company is insolvent or on the verge of becoming insolvent. If this is the case then it is certainly time to propose a CVA with the help of a licensed professional.

Remember it is only worthwhile proposing a CVA if you know that the company has a viable future and income, we must be sure it can trade through the period of the arrangement.

 


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