A Company Voluntary Arrangement (CVA) is essentially a deal made between a company, which includes Partnerships and LLPs, and its creditors that offers a better outcome to creditors than would be achieved if the company were to enter into another insolvency process, for example liquidation. A common element of a CVA is that a company will request extra time to pay off historic debts and may also ask that creditors write off a proportion of the amount due.
It is a process that can last up to 5 years, is subject to agreement by over 75% of creditors who vote to consider the CVA, and is supervised by an insolvency practitioner to ensure that any terms stipulated by the CVA are complied with.
So what are the advantages? Well, these include (but are not limited to) the following:
1. A CVA typically avoids any break in trade so maintains goodwill and customer relationships
2. Directors remain in day to day control of operations
3. There is no specific requirement for assets to be bought back by a successor company as is often the case with administration and liquidation sales. This can be particularly helpful where prospective purchasers have limited funding available
4. Personal guarantees offered by directors may be deferred or reduced in certain circumstances
5. There can be tax advantages associated with a CVA in that historic losses will continue to be available to set against future profits and balances due to directors in respect of loans or current accounts will be preserved
6. A CVA carries less stigma than other insolvency processes such as liquidation or administration
7. A CVA is an extremely flexible process that promotes the survival of a company with its business largely intact, albeit often subject to some restructuring. Therefore it maximises the prospect that all stakeholders benefiting from ongoing trading assuming a return to profitability is achieved
If you would like to like to know more about CVAs and whether it can help your company, please do not hesitate to contact us for a free consultation.
We also have some case studies from previous and current clients on our blog which you may find helpful: