Updated: 5th February 2020
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If you’re a director of a struggling company in Scotland, this guide on Company Voluntary Arrangements may help to provide light at the end of the tunnel. Thousands of companies across the UK face insolvency every year but to varying degrees; some require minor restructuring and debt advice to be prosperous once again, others require drastic action to save liquidation or damage limitation if that outcome has become impossible to avoid.
Companies find themselves in financial distress for a number of reasons; sometimes it can come out of the blue such as through the loss of a key contract or client, leaving you with the feeling of a rug being pulled from under your feet. Or perhaps it has been on the cards for some time and you feel you are losing control of the situation; whatever scenario you find yourself in, company insolvency requires immediate action before it escalates further. We’ve lost track of the amount of times a company director has opted to plunge his or her head in the sand and leave their business in an unassailable situation where earlier action could have led to a positive outcome.
A common avenue for companies to take, when there are unable to pay their debts, is through Company Voluntary Arrangements – popularly known by its acronym of a CVA. This process has a number of benefits for the debtor and creditor as opposed to other insolvency procedures such as administration and liquidation.
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The key advantage for your company – the debtor – would be that it can carry on trading whilst plans are put in place to repay the creditor or creditors involved. Creditors would often be very receptive to this as they would be unlikely to receive anywhere near the same repayment – if anything at all – if your company fell into administration or liquidation. For further info, you can read our individual guides on Company Administration in Scotland and Company Liquidation in Scotland.
The CVA itself is essentially an agreement between you and your creditors that your company intends to pay off its debts over a specific timescale. It may be the case that your business has brighter days ahead and you can guarantee that future profits will be able to appease the creditors going forward, or you may need to create funds through the sale of company assets. Either way, you are promising your creditors that you will pay them back although this doesn’t necessarily have to be 100% of the money owed – they are likely to take a positive contribution as they know they won’t receive anything if your company ceased to exist.
However, if you do fail to keep up with your CVA payment schedule, creditors could become increasingly disgruntled and petition for your company to be wound up.
If you require more information about how a Company Voluntary Arrangement could help your business, don’t hesitate to contact Real Business Rescue. CVA’s can be the most cost-effective insolvency solution and preferable to all parties – and doesn’t require a public notice placed in the Edinburgh Gazette. You can arrange a free consultation with one of our business rescue experts at your local Real Business Rescue office in Scotland – choosing from five regional offices in Aberdeen, Dundee, Edinburgh, Glasgow and Inverness. Alternatively we can come and see you at your convenience – again through a free consultation – or you can call our designated director hotline on 0800 644 6080 for immediate advice.